The most important issue in corporate governance today is dual class capitalization, and the most important recent development is the petition submitted on Oct. 24, 2018 by the Council of Institutional Investors (CII) to both the New York Stock Exchange and Nasdaq, asking them to place a “sunset” on differentials in voting rights. Under the CII’s proposal, both exchanges would agree not to list an initial public offering (IPO) that had dual classes of stock with different voting rights, unless the disparity in per share voting power ended no later than seven years after the IPO. The CII sees this as a compromise (with some of its members viewing it as an overly lenient proposal). In fairness to the CII, it has offered a constructive compromise, but there are problems with the incentive effects of its proposal.

Regardless of the CII’s willingness to compromise, almost no one else is. Academics and practitioners have predictably become polarized, with the academics seeing dual class stock structures as indefensibly entitling corporate founders (and their progeny) to perpetual control (For the standard academic review, co-authored by the leading proponent of shareholder power, see Lucian Bebchuk and Kobi Kastiel, “The Untenable Case for Perpetual Dual Class Stock,” 103 Va. L. Rev. 585 (2017)), and practitioners seeing dual class capitalization as the only feasible defense against hedge fund activists, who in their view are increasingly imposing a mandatory short-term mentality on Corporate America. Both sides in these debates tend to herd together and close ranks, demanding the unthinking loyalty of their colleagues. Only this columnist remains annoyingly objective and independent on these issues.

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