Dual versus single

Panel discusses pros, cons of stock options


11:28 a.m., April 20, 2012--Do the individuals who have the most economic interest in a company have the least amount of control? What effect does dual class stock have on investors, on society as a whole? A debate centered on these issues brought together a panel of experts last Thursday, April 12, in Alfred Lerner Hall.

Hosted by the John L. Weinberg Center for Corporate Governance, the panel met to discuss “Dual Class Stock: Cost, Benefits and Future under Delaware Law.”

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Charles Elson, director of the Weinberg Center and moderator of the panel, opened the discussion with a recent history of dual class stock and its place in the broad spectrum of corporate governance.

According to Elson, companies can offer varying classes of stock which in turn indicate different voting rights and dividend payments, versus offering single class stock or a “one share one vote” system.

“The harms of dual class stock traditionally were said to be to the investors alone but present controversies have demonstrated that the harms have become more broad and societal based,” said Elson, who is also the Edgar S. Woolard Jr. Chair in Corporate Governance.

In such companies, the monitoring function of the board is exported to third parties including the government and the cost to society may be quite high as we have seen in recent scandals.

According to panelist David L Cohen, executive vice president at Comcast Corp., there are both success and horror stories in dual class and single class stock-based companies.

“If you have good management, an invested board of directors and good governance structure, regardless of the capital structure it will be a good company,” said Cohen. 

J. Michael Cook, retired chairman and chief executive officer at Deloitte and Touche LLP, agreed.

“We have to question the extent to which capital structure influences the organization and effectiveness of a company,” said Cook, who is also a director at International Flavors and Fragrances and Comcast Corp. 

Individuals on the panel who opposed dual class stock raised the issue of accountability, and argued it facilitates a disconnect between investors and the individuals who make company decisions.

Panelist Geoff Colvin, editor at Fortune Magazine, argued that the market system makes sense when ownership and control are equal. 

“No one will say by eliminating dual class stock all companies would be good performers but putting in incentives to behave the way the market was meant to behave would encourage better behavior,” said Colvin.

Michael Useem, William and Jacalyn Egan Professor of Management and director of the Center for Leadership and Change Management at the Wharton School, University of Pennsylvania, neutralized the debate.

“Dual class stocks are here to stay,” said Useem. “So if they are here to stay and if we lack the discipline of the market, we have to have more internal discipline.”

For Useem, a strong board of directors, and a great board leader and top management -- regardless of a dual or single class stock structure -- should influence the performance of a company. 

Article by Arianne Minch

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