September 8, 2017

Overreacting to dual class stock

Stephen Bainbridge |

Yvan Allaire has a great analysis of Dow Jones’ overreaction to Snapchat’s IPO and the dual class stock phenomenon in general:

”In July 2017, Dow Jones, goaded by the reaction to Snapchat having gone public with a class of shares without voting rights, announced that, after extensive consultation, it had decided to henceforth eliminate companies with dual-class shares from its indices, in particular the S&P 500 Index. …

The surging popularity of this type of capital structure has agitated institutional investors and other types of shareholders that pretend, with no legal support, to be the owners of the companies. Skirmishes about dual-class shares then turned into an all-out war led by index fund managers, some institutional investors, influential academics, the governance industry, and investment bankers. They allege that dual-class shares result in a discounted value and a poor relative performance. They are prone to claim that the one share-one vote principle is the moral equivalent of the sacrosanct one person-one vote of electoral democracy.

Of course that equivalence between electoral democracy and shareholding is totally bogus”.

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