Shareholder Democracy and the Challenge of Dual Class Share Structures
One share, one vote is a basic principle of shareholder democracy. It protects minority shareholder voices in markets with dispersed ownership. Multi-class share structures violate this principle. They give subsets of a company’s equity owners superior voting rights, so that their influence outweighs their economic interest. Our 2024 post-proxy season analysis shows that, for companies […]
Ignacio Garcia Giner is a Senior Analyst, Matteo Felleca is an Analyst, and Jackie Cook is a Director at Morningstar, Inc. This post is based on their Morningstar memorandum.
One share, one vote is a basic principle of shareholder democracy. It protects minority shareholder voices in markets with dispersed ownership. Multi-class share structures violate this principle. They give subsets of a company’s equity owners superior voting rights, so that their influence outweighs their economic interest.
Our 2024 post-proxy season analysis shows that, for companies with differential share voting rights, reported vote results often deviate significantly from estimated broad market shareholder sentiment on resolutions that shape important aspects of corporate governance. Multi-class structures can distort key governance signals, limiting the influence of minority shareholders on issues ranging from executive compensation to environmental, social, and governance (ESG) resolutions. Systemic risks may also arise as a growing number of companies, particularly in the tech sector, adopt this share structure at their initial public offering. [1]
As a minimum safeguard, companies should be required to disclose their vote outcomes by share class, to better represent the market signal conveyed via proxy voting, and to ward off weaker market-wide governance practices. [2]
