Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, July 5, 2018

Sharfman on Dual Class Share Voting Versus “Empty Voting” of Mutual Fund Advisors

Bernard S. Sharfman has a nice post on Dual Class Share Voting Versus the “Empty Voting” of Mutual Fund Advisors over at the The Conference Board Governance Blog.  In part, he writes:

From time to time I am asked to explain how I can support the disproportionate voting found in dual class shares while at the same time strongly criticizing the “empty voting” of mutual fund advisors. While both are corporate governance issues that need to be addressed separately, both do involve the same phenomenon, the ability of certain shareholders to obtain voting power that is much greater than their economic interest. . . . Dual class shares are a value maximizing result of a specific firm’s private ordering of corporate governance arrangements.  They are only agreed to when it is expected to result in a successful offering to new investors.  In contrast, empty voting has become a new systemic risk for all those who invest in the equities of U.S. public companies and for public companies in general.  It is an agency cost that needs to be addressed and controlled.

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