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Lecture8 - raising capital debt equity covenants

17 costs of dual class shares opposition to dual

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Unformatted text preview: tives. valuable Some of the best-performing companies in their sectors in Some Canada have multiple-voting share structures. 17 Costs of Dual-Class Shares Opposition to dual-classes is growing, led by large Opposition institutional investors: Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan, the Ontario Municipal Employees’ Retirement System, and the British Columbia Investment Management Corporation, all support single-class share structures. The Canadian Coalition on Good Governance believes that: that: “any corporate governance regime is suspect if all the any structures, protections and processes can be negated by a voting interest well beyond the economic interest.” voting 18 Costs of Dual-Class Shares They confer economic power to insiders while permitting They them to pass off the majority of the financial risk. Insiders are able to expropriate funds from those holding lesser voting shares through self-dealing, extravagant executive pay, and also by directing the company’s cash flow to personal projects unrelated to the core business. They entrench poorly performing management and insulate managers from accountability for their actions, since they preclude shareholders from mounting successful challenges. Some studies have shown that, as an investment, dualSome class share structures tend to under-perform single-class class structures over time. But evidence not conclusive. 19 Dual-Classes at Hollinger Intl. Hollinger International Inc. presents an extreme example Hollinger of the detrimental effects of dual-class share structures. Former Chief Executive Officer Conrad Black controlled all of the company’s Class B shares, which gave him 30% of the equity and 73% of the voting power. Mr. Black appointed the majority of board members, who were unlikely or unwilling to oppose his authority. Mr. Black exacted excessive management fees, consulting payments, and personal dividends The aggregate funds taken by Mr. Black and Hollinger...
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