Dual-Class Shares: Risks and Advantages

Dual-class share structures offer stakeholders real advantages, but more firms need to follow best practices in deployment to mitigate the risk of abuse. This article highlights four different ways that Canadian firms, including Rogers and Shaw, implement dual-class share structures. It also discusses the related advantages and risks. Advantages include how dual-class shares facilitate the execution of strategy; encourage founders to publicly list stock; insulate the firm and management from short-termism; protect founders from activist shareholders; and protect firms making capital expenditures with long pay-off horizons. Disadvantages include how dual-class shares create agency issues and conflicts of interest, especially when controlling shareholders have minimal economic interest; create an inferior class of shareholders; allow entrenchment of management with directors often elected by controlling shareholders; increase the likelihood of related-party transactions; and reduce the likelihood of independent/non-executive board leadership. The article finishes with some governance considerations, including how the Canadian Coalition for Good Governance developed a dual-class share policy that encourages best practices for companies with dual-class shares. Some of the key principles include subordinated rather than non-voting shares, meaningful equity ownership, and mandatory sunset provisions.

• Corporate governance best practices, dual-class shares, dual-share structures, controversial corporate structures