Below, a continuation of our bibliography of thought-provoking articles on issues related to right-sizing regulation, staying private versus going public, and related topics:
More Views on Dual Class Structures
Bernard S. Sharfman takes a contrarian view on non-voting and dual class share structures in his paper, “A Private Ordering Defense of a Company’s Right to Use Dual Class Share Structures in IPOs.” Mr. Sharfman notes that private ordering results in investors that have considered the potential issues associated with limited voting rights but that conclude that there are wealth maximizing aspects associated with dual class share structures.
In “Nonvoting Shares and Efficient Corporate Governance,” author Dorothy Shapiro Lund presents an interesting theory that the use of nonvoting shares lowers the cost of capital for an issuer. Lund notes that the shareholder base of U.S. public companies is principally institutional. Institutional investors (other than passive funds) and founders are generally more motivated investors that value their votes. Retail investors generally do not vote. Nonvoting shares lessen agency costs by allocating voting rights to shareholders with the most incentive to maximize the company’s value. For this and other reasons set out in the paper, the author argues that the backlash against nonvoting shares is misguided.