Carol Hansell Comments on Dual Class Share Structures
May 5, 2015
Dual class shares are a bit like that mystery sauce you get at Swiss Chalet. Some might profess not to like it, yet they keep dunking their chicken in it.
Swiss Chalet’s parent company, Cara Operations Ltd., last month went public in one of the most successful initial public offerings in recent memory. Investors gobbled up stock, with shares jumping 40% on the first day of trading. The dual share structure of the deal clearly wasn’t a concern. Investors bought about 10 million subordinate voting shares, in which one share gets one vote. Members of the Phelan family, which founded the restaurant chain, and Cara backer Fairfax Financial Holdings Ltd. acquired 37.4 million multiple voting shares, which grant 25 votes per share.
Cara is just the latest example. Ottawa-tech darling Shopify Inc. has filed papers for a $100-million IPO in Toronto and New York in which the public will be offered Class A shares that come with one vote per share, while company founders and insiders will receive Class B shares, which come with 10 votes a share.
These names add to a growing list. Google Inc., Facebook Inc., Groupon Inc. — all came to market with dual class shares, and they’ve succeeded in the face of long-standing opposition on the part of corporate democracy advocates for whom dual-class shares are a no-no. Governance gurus be damned, investors like them.
“Part of the reason dual-class shares survive is that people are prepared to invest in them,” says Carol Hansell, founder and senior partner of Hansell LLP, a legal boutique that specializes in corporate governance. “If investors don’t like dual-class shares, don’t buy them.”
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If a difference in voting rights is arguably abusive, some investors see that as part of the deal. “Little people like us want to eat at the big kid’s table,” Hansell says. “I guess people can decide for themselves how much abuse they’re prepared to put up with if they’re making a lot of money.”