A New Challenge to Dual-Class Stock Structures

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  • CBS’s lawsuit against National Amusements, its controlling shareholder is, among other things, a challenge to dual-class stock structures.

National Amusements controls almost 80% of the voting stock in CBS, but actually owns only 10%.

Dual-class stock structures are already under fire from regulators, index providers and the courts.

Here at Sigma, we have consistently voted against dual-class and super-majority stock structures at every opportunity.

Under dual-class stock structures, some shareholders can be favored over others, which is the long-running criticism of these structures.

A case can be made that dual-class systems can benefit investors during a company’s early stages by insulating the company from short-term market pressures.  However, studies show that the benefit wanes over time and firms that keep a dual-class structure tend to trade at a discount to ones that end it.

Last year, the S&P 500 took a stand against dual-class structures, barring public companies with multiple classes of shares from joining the index.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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