Every four years, nearly half of Americans do not bother to participate in presidential elections. Investors are often just as lazy. But, periodically, Wall Street gives them a stark reminder of just how valuable a vote can be.
This week provided two perfect examples. On Tuesday, Rupert Murdoch launched an audacious attempt to buy Dow Jones and its flagship Wall Street Journal title.
The juicy 65 per cent premium on offer would usually have meant investors trampling down his door to tender their shares. Instead, a protracted battle is likely. Success will depend on winning the support of the Bancroft family, which controls the company through super-voting shares but has limited influence in the day-to-day running of the business. If Mr Murdoch cannot charm or bully them into selling, ordinary shareholders will probably see their stakes plummet in value.
Then, on Wednesday, the Dolan family finally got a board recommendation to take Cablevision private after two failed attempts. The trouble is, the price is still too low. Time Warner Cable would almost certainly snap it up for more than the Dolans are willing to pay. But the family, again with voting control through a dual structure, has denied other shareholders full value by refusing to sell the company to anybody else.
It is not all doom and gloom. Such shareholder structures can sometimes work in favour of the disenfranchised. For example, Mr Murdoch would not have offered anything like $5bn as an opening bid for Dow Jones if he had not needed to dislodge the Bancrofts. If a deal does get done, the entrenched family position will have made all shareholders a lot richer.
Meanwhile, it is feasible to argue that super-voting shares can give public companies some of the advantages enjoyed by privately-owned businesses. The shares allow owners to take a long view, without being fixated on quarterly earnings. Predators cannot swoop in to take advantage of short-term share price weakness.
Mr Murdoch, who controls News Corporation through a dual structure is, ironically, a case in point. He has done a number of deals, such as buying MySpace and launching the Fox network, that investors disliked initially and came to love over time. With Dow Jones, it is possible he could make even today’s high price today look like a shrewd investment in the future.
But those are exceptions. The basic rule should be one share one vote. Too often investors have held their noses and accepted dual structures as the only way to get exposure to specific companies. The thinking, presumably, is that by the time the structure comes back to bite them, they will be long gone. But bite somebody it almost certainly will.
It could simply be a question of time. The genes of a brilliant entrepreneur who investors were willing to trust with absolute power may not be passed to the next generation. That could leave investors powerless to force change in the face of an incompetent owner with voting control.
Alternatively, a big transaction materialises. But ordinary shareholders are either incapable of forcing a sale (as with Dow Jones), or are not able to get the full price (as with Cablevision).
In spite of many cautionary tales, starry-eyed investors still waved through Google’s dual structure three years ago in a vote of confidence in the abilities of founders Larry Page and Sergey Brin. The structure is irrelevant now. Google’s conquest of the internet world continues apace. But one day it will matter. Google will become an “ordinary” company and, no doubt, in the future, it will do something to make investors feel abused.
Perhaps the solution is for those who believe their companies need the protection of a dual structure (such as newspaper owners wanting to protect editorial integrity) to keep them in private ownership. That would hardly be a big handicap in today’s capital-flooded world.
And for those who want the dual-structure to ensure family control and avoid short-termism, how about signing up to an finite timetable? The super-voting shares remain in place for the tenure of the founder whose talent persuaded investors to accept it in the first place. But future generations have to re-earn the privilege, through a full shareholder vote.