For the first time since 2015, the SEC has its full complement of five commissioners. That’s a good thing. And at least one new Commissioner – Robert Jackson – seems to have hit the ground running. For example, he made a speech in San Francisco just the other day in which he expressed his disfavor of dual-class stock, suggesting that it would create “corporate royalty”. Specifically, because shareholders in at least some dual-class companies have no voting rights, leadership of the company could be passed down through the generations in perpetuity.
Commissioner Jackson is a smart man – I’ve seen him speak at a number of programs, and he’s demonstrated his intelligence as well as his telegenic appearance. His use of the “corporate royalty” meme also shows that he’s witty, though don’t think we need to worry too much about CEO titles becoming hereditary.
What I do think we may need to worry about is where he goes with his concerns. Specifically, the point of his speech is to suggest that exchanges adopt mandatory sunset provisions so that their dual-class structures would fade away over time.
Like his use of the “corporate dynasty” approach, sunset provisions are clever. And to opponents of dual-class structures, they may make sense. What bothers me about the approach is Commissioner Jackson’s inclination to regulate them rather than to let the market figure out whether they are good, bad or indifferent and deal with them accordingly.
For the record, I’m not a huge fan of dual-class shares. I understand why they have been used, but I see a number of technical and other governance problems with them – particularly when they are used to virtually or totally eliminate any voting rights of rank and file shareholders. However, I’m also not a huge fan of merit regulation, which is what Commissioner Jackson appears to be suggesting.
Perhaps in time, regulation may be needed. But the current use of dual-class shares is not only limited (i.e., why spend lots of regulatory capital and time on a relatively small problem); it’s also rather new. So while I don’t look to the market to solve all our maladies, I’d at least like to give it a chance rather than take a what may be an unnecessary and precedent-setting preemptive strike.