Sticking Around Too Long? Dynamics of the Benefits of Dual-Class Structures

Lawyers and academics generally have a dim view of dual-class share structures. When Snap Inc., a technology-based social media company, was preparing for its initial public offering (IPO) in early 2017, for example, CalPERS and many other prominent institutional investors harshly criticized the company’s move to create another share class with no voting rights.[1]

The main drawback of a dual-class share structure is, of course, that insiders who control the firm with voting rights that are disproportionately greater than their cash flow rights can easily take advantage of dispersed outside shareholders. (Co-founders Bobby Murphy and Evan Spiegel, for example, … Read more