Long-Term Shareholders and Time-Phased Voting

106 Pages Posted: 2 Jul 2015 Last revised: 22 Jun 2017

See all articles by Lynne Dallas

Lynne Dallas

University of San Diego School of Law

Jordan M. Barry

University of San Diego School of Law

Date Written: July 2, 2015

Abstract

We explore Time-Phased Voting (“TPV”), an arrangement in which long-term shareholders receive more votes per share than short-term shareholders. TPV has gained prominence in recent years as a proposed remedy for perceived corporate myopia.

We begin with theory, situating TPV relative to other corporate voting structures such as one-share-one-vote and dual-class stock. By decreasing the influence of short-term shareholders, TPV may encourage managers to act in the long-term interests of their firms. It may also facilitate controlling shareholder diversification and firm equity issuances by enabling controlling shareholders, who are generally long-term shareholders, to maintain their control with lower levels of ownership. In this respect, it resembles a milder form of dual-class stock, but is more targeted toward myopic behavior.

We then investigate U.S. companies’ experiences with TPV in practice. Due to limited U.S. experience with TPV, our sample size is small from a statistical standpoint. Nevertheless, our findings are consistent with our theoretical analysis. Our ownership and voting data suggest that TPV empowers long-term shareholders, but that it does little to encourage long-term shareholding; this may be due to a lack of investor awareness regarding the few companies that have TPV. In the short term, TPV empowers insiders, increasing their control and creating a wedge between their ownership and control of the firm (though a smaller wedge than is typical of dual-class firms). However, in the long term we find that TPV is associated with reduced insider ownership and control. We see a transition in TPV companies, which are mainly mature, family-owned companies, from a concentrated to a more dispersed ownership structure. Relatedly, we find that TPV is associated with significant insider diversification and the issuance of additional equity.

Overall, TPV firms significantly outperformed the market as a whole; an investor who invested in our TPV firm index in 1980 would have more than six times as much money at the end of 2013 as an investor who invested in the S&P 500. While it is not clear that TPV contributed to this strong performance, we believe that shareholders and corporations should be free to experiment with reasonable TPV plans if they so choose.

The appendix to this paper is available at: http://ssrn.com/abstract=2746638.

Keywords: time-phased voting, tenure voting, TPV, short-termism, myopia, long-term shareholders, corporate law, dual-class stock, corporate governance, shareholder rights, voting rights, shareholder voting, corporate takeovers, takeovers, takeover defenses, entrenchment, quarterly capitalism, disparate voting

JEL Classification: G34, K22, G38, G32, M14

Suggested Citation

Dallas, Lynne and Barry, Jordan, Long-Term Shareholders and Time-Phased Voting (July 2, 2015). 40 Delaware Journal of Corporate Law 541 (2015); San Diego Legal Studies Paper No. 15-194. Available at SSRN: https://ssrn.com/abstract=2625926

Lynne Dallas

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Jordan Barry (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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