Dual Class Stock

This chapter examines dual class common stock. Dual class stock has evolved from a vehicle used largely by insiders in family owned and media companies to retain control into a popular capital structure for founders and initial shareholders in technology start-ups. After briefly reviewing the history of dual class stock, the chapter recounts the longstanding debate over its desirability, in which defenders tout the ability of dual class to enable founders to realize their idiosyncratic visions for the firm, while critics express concern over the creation of agency costs. The chapter describes how this policy debate has led to efforts to restrict or restrain the use of dual class through stock exchange listing bans, index exclusions, proxy advisor recommendations, and sunset provision. It concludes by observing that the debate over dual class is overly simplistic in framing the issue as a binary choice. Rather dual class stock exposes the possibilities and challenges associated with the customization of shareholder control in the corporation. In particular, dual class highlights both the challenge in identifying who is a controlling shareholder and the implications of that control for traditional fiduciary duties.