SEC Commissioner Robert Jackson examined the governance of companies with perpetual dual-class stock ownership structures. In his first public remarks as SEC Commissioner, Mr. Jackson expressed concern that such structures often confer few or no voting rights to ordinary investors, potentially giving corporate insiders complete control for an indefinite period.
Mr. Jackson warned that an increasing number of companies are going public with dual-class structures. While acknowledging the potential benefits, such as "visionary founders" being able to retain their control without being subjected to short-term pressures from investors, he warned that such structures undermine accountability.
Mr. Jackson said he does not support a unilateral ban on dual-class offerings. He questioned the reasonability of dual-class structures that last forever. Mr. Jackson argued that perpetual dual-class structures are both antithetical to the spirit of accountability and inadvisable from a market perspective. He presented data indicating that perpetual dual-class structures perform unfavorably in the long run compared to dual-class structures with sunset provisions. He further noted that, in response to investor pressure, the FTSE Russell has elected to exclude all companies whose free float constitutes less than 5% of total voting power; S&P Dow Jones intends to exclude all dual-class firms; and MSCI will reduce the weight that dual-class firms occupy in its indexes. However, Mr. Jackson characterized these responses as "a blunt tool" and raised concern that such measures may result in "Main Street investors'" inability to partake in the upside of our most innovative companies through investment in indices. Therefore, as an alternative, Mr. Jackson advocated for exchanges to consider revising listing standards to exclude companies with perpetual dual-class arrangements only. He dismissed concerns that a large number of companies might flee as a result.
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