Governance Issues in Dual Class Share Firms

Forthcoming in Annals of Corporate Governance

69 Pages Posted: 25 May 2018

See all articles by Anita Anand

Anita Anand

University of Toronto - Faculty of Law

Date Written: May 14, 2018

Abstract

In a typical public company, shareholders can elect the board, appoint auditors, and approve fundamental changes. Firms with dual class share (DCS) structures alter this balance by inviting the subordinate shareholders to carry the financial risk of investing in the corporation without providing them with the corresponding power to elect the board or exercise other fundamental voting rights. This article fills a conspicuous gap in the scholarly literature by providing empirical data regarding the governance of DCS firms beyond the presence of sunrise and sunset provisions. The summary data suggest that the governance of DCS firms is variable. A large proportion of DCS firms have no majority of the minority voting provisions and no independent chair. By contrast, almost half of the DCS firms have a sunset clause and a majority of independent directors. Finally, just under one-third of DCS firms have change of control provisions over and above existing law. On the basis of this evidence, this article argues against complete private ordering in favor of limited reforms to protect shareholders in DCS firms including: mandatory sunset provisions, disclosure relating to shareholder votes, and buyout protections that would address weaknesses inherent in DCS firms.

Suggested Citation

Anand, Anita, Governance Issues in Dual Class Share Firms (May 14, 2018). Forthcoming in Annals of Corporate Governance. Available at SSRN: https://ssrn.com/abstract=3178345 or http://dx.doi.org/10.2139/ssrn.3178345

Anita Anand (Contact Author)

University of Toronto - Faculty of Law ( email )

78 Queen's Park
Toronto, Ontario M5S 2C5
Canada
4169464002 (Phone)

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