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Dual Class Shares Suck
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From a statistical perspective, it would be better to hold the single-class stock in the industry you are looking at, compared to the dual-class company
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Dual-class stock = enlightened dictatorship » mathewingram.com/work |
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And if you don’t want to bow to the whims of the marketplace, then there’s a simple solution that Marc ignores: Don’t go public.
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The Two Sides of Dual-Class Shares
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Once shares are listed, however, companies cannot reduce the voting rights of the existing shares or issue a new class of superior voting shares.
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Ford's dual-class stock structure, for instance, allows the Ford family to control 40% of shareholder voting power with only about 4% of the total equity in the company. Berkshire Hathaway Inc., which has Warren Buffett as a majority shareholder, offers a B share with 1/30th the interest of its A-class shares, but 1/200th of the voting power. Echostar Communications demonstrates the extreme power that can be had through dual-class shares: founder and CEO Charlie Ergen has about 5% of the company's stock, but his super-voting class-A shares give him a whopping 90% of the vote.
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blog.pmarca.com: In praise of dual-class stock structures for public companies
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- The key leaders of the company -- typically the founders -- who will own the controlling Class B shares, are also major economic shareholders in the company. They own a significant portion of the company and are therefore highly incented to maximize the value of the company over time.
- The key leaders of the company who own the controlling Class B shares have a long-term goal of building a major franchise, and the commitment required to execute against that goal.
- The controlling Class B shareholders have a commitment to treat Class A shareholders fairly and equally in all respects other than voting power.
- All public shareholders understand what they are getting into up front -- no bait and switch.
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n practice, the world at large, the markets in which companies operate, and Wall Street in particular, throw up all kinds of short- and medium-term noise in the face of every public company, all the time.
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