The distinguished scholars Professors Lucian Bebchuk and Kobi Kastiel (both of whom I am proud to call my friends) are once again targeting technology companies with dual class stock. In two posts published in the past two weeks and based on a similar analysis, the subject of their ire has been Lyft and Pinterest, respectively. [1] The Bebchuk/Kastiel posts focus on the “governance costs” facing investors in both companies at some point “down the road” as a result of their dual class structures. In particular, and based upon their earlier research on what they call “small-minority controllers” and “perpetual dual-class stock,” Bebchuk and Kastiel conclude that the dual class structures of both companies will eventually pose “substantial risks” for investors, and as a result can be expected to “significantly decrease the economic value of [each company’s] low-voting shares that public investors will hold.”

The day before Lyft’s IPO I was invited by Nasdaq’s Listing Council to speak on dual class stock. Specifically, the Council asked that I respond to the petition submitted by the Council of Institutional Investors (“CII”) that companies going public with dual class shares include mandatory sunset provisions in their charters, effectively terminating the dual class structure after seven (7) years (my remarks are available on SSRN). [2] CII’s Petition relied upon the same scholarship by Professors Bebchuk and Kastiel that they now use to criticize the dual class governance structures adopted by Lyft and Pinterest.

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