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Boston College Law School

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Tuesday, May 8, 2007

Dow Jones, Dual Class Stock and Public Trusts

Peter Kann, the retired chairman of Dow Jones & Co., yesterday sent a letter to the Bancroft family.  In the letter he states he admires them "for doing what is right," in rejecting News Corp.'s $5 billion offer for the company.  He further states: 

I clearly can understand that in rejecting a takeover offer you are foregoing some financial benefit. To that I can only say that you are not alone in seeing other and even higher priorities. There are many people in our larger society who make career and other decisions that do not always maximize financial benefit. . . . . Rather, they devoted their careers, and they still do, to something more important -- to pursuing a form of public service in a company that has seen itself as a public trust and that has been protected by a family that shares that commitment.

Kann's letter is a follow-up to the letter sent over the weekend by James H. Ottaway Jr., holder of 6.2% of Dow Jones.  In that letter Ottaway also cited the public trust doctrine to justify the Bancrofts' refusal to sell:

The Bancroft family has treated Dow Jones as a public trust, not for personal or political interests, or maximum enhancement of family wealth by sale to a high bidder. The family has respected its inheritance as a responsibility to protect an important national institution that plays a major role in American democracy and debates of public issues because of its editorial independence and high news quality standards.

Dow Jones has a dual-class stock structure which provides the Bancroft family voting control of the company without an equivalent economic interest.  Though I am against dual class stock due to the agency problem, I'm not terribly sympathetic to the minority shareholders here who are foreclosed from this acquisition opportunity due to their relative disenfranchisement.  They bought their shares with full knowledge of this arrangement.  To complain now strikes of hypocrisy (Bainbridge agrees with me in the context of the dispute over a similar share structure at the New York Times). 

Still, I'm not sure that the shareholders of Dow Jones thought they were buying into a public trust, that is a company run for purposes other than profit.  Moreover, while the family can (almost) certainly refuse to sell for any reason they choose, the board of directors of Dow Jones cannot run the company as it is currently structured as a public trust under Delaware and other law (remember the old Michigan case Dodge v. Ford which held that Henry Ford owed a fiduciary duty to his minority shareholders to operate Ford Motor Co. for profitable rather than charitable purposes.).  The purpose of a for-profit company is to be run for profit.  If Dow Jones' controlling shareholders want to run a public trust they can do so without resort to public shareholder financing.  They can buy their minority out and perhaps then donate the shares to a true public trust.  Until then, Dow Jones' board of directors have fiduciary duties to their minority shareholders which make public trust notions, at least in their purest sense, inappropriate. 

http://lawprofessors.typepad.com/mergers/2007/05/dow_jones_dual_.html

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