Over the past year, proxy advisory firms, major index providers, and the SEC’s Investor Advisory Committee have weighed in on the growing number of companies with dual-share classes. Today, 9% of the S&P 100 and 8% of the Russell 300 are comprised of companies with dual-class structures. The Council of Institutional Investors has assembled and published a list of public companies with dual-class structures. During a recent program hosted at the Weinberg Center, titled “Snap Judgment: The Legal and Investment Issues Associated with Non-Voting Stock,” participants debated whether courts should step in and consider dual-class structures.
Traditionally, courts will defer to the business decisions of a company with independent directors that act in good faith having undertaken reasonable care. However, some participants noted that the business judgment rule has been premised on the notion that stockholders could remove a board with which they disagreed. In instances in which stockholders cannot hold boards of directors accountable by exercising voting rights, participants argued that it might be appropriate for courts to take on greater responsibility for shareholder protection through more active intervention. Of course, it could be argued that stockholders could simply sell their securities.