“The advantage of a dual-class share structure is that it protects entrepreneurial management from the demands of ordinary shareholders. The disadvantage of a dual-class share structure is that it protects entrepreneurial management from the demands of shareholders.” Issuing dual classes of stock has become hotly debated since two major events transpired in 2014: (1) Facebook acquired WhatsApp for $19 billion and (2) Alibaba chose to list its shares on the New York Stock Exchange (NYSE) instead of the Hong Kong Exchange. Because dual-class managers, like those at Facebook and Alibaba, retain a controlling voting block, their decisions are immune from activist investors or others who disagree with corporate actions. This protection allowed Mark Zuckerberg to acquire WhatsApp at an enormous price that stockholders may have resisted, and it is why Alibaba chose to list on the NYSE even though its stockholders may have found the Hong Kong Exchange to be a more natural fit. This Comment seeks to determine whether the one-man decisional structures at Facebook and Alibaba—accomplished through dual classes of stock—allow such managers to undertake, what the market perceives to be, value-destroying transactions more often than their single-class counterparts.
Christopher C. McKinnon,
Dual-Class Capital Structures: A Legal, Theoretical & Empirical Buy-Side Analysis,
Mich. Bus. & Entrepreneurial L. Rev.
Available at: http://repository.law.umich.edu/mbelr/vol5/iss1/4