Offloading the Burden of Being Public: An Analysis of Multi-Voting Share Structures
21 Pages Posted: 8 Feb 2016
Date Written: February 5, 2016
Public companies with dual class and multiple voting share (MVS) structures have grown in popularity in the United States as evidenced by Google, Alibaba and Fitbit. While MVS allow founders to retain control of their firms, they undermine corporate governance standards. In particular, MVS structures undermine minority shareholders' rights and render these rights meaningless in the face of the proportionately greater economic risk that minority shareholders bear. Some argue that "caveat emptor" applies: shareholders, armed with full disclosure of a firm's capital structure, invest in companies with multiple voting shares at their own risk. But this line of reasoning fails to account for two important aspects of relevant law. First, MVS structures undermine existing accountability mechanisms in corporate law. Second, a securities regime premised on investor protection that equips regulators with the discretionary power to intervene in the public interest calls for further regulation, and perhaps prohibition, of MVS.
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