Stock Shares' Ongoing Class Struggle

Ford, Dow Jones and other special class B shares granting super-size voting rights draw harsh criticism, but they're not going away any time soon

by Alex Halperin

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Who would give in first, the Fords or the Bancrofts? The members of the automobile dynasty and the clan behind The Wall Street Journal control their respective companies through supervoting, which in theory gives them iron-clad control while ordinary investors have to make do with reduced voting power. But recent developments, including Rupert Murdoch's whopping $60-per-share offer for Dow Jones (DJ) and press reports that some Ford family members want to sell off part of their stake in troubled Ford Motor (F), raise the question: Is the dual-class structure going the way of the dodo? (The Ford family has denied the report.)

The headlines have put a fresh spotlight on the perils of a dual-class voting structure for shareholders. Typically in these cases, a few people, such as company insiders or founding family members, have voting power far exceeding their financial stake in the company. This somewhat archaic structure—a frequent target of criticism from corporate governance experts and investors—continues to affect how deals transpire on Wall Street.

The Ford news, reported by Bloomberg on May 14, follows after Rupert Murdoch's News Corp. (NWS) made an astronomical $60-per-share bid for Dow Jones when the stock was trading at around $36 (see BusinessWeek, 5/14/07, "Crazy Like a Fox"). Both Dow Jones and News Corp., have similar stock structures, but the headlines continue to focus on Dow Jones because the controlling Bancroft family has declined to sell its stake to Murdoch for fear of how the owner of the New York Post and the racy British tabloid The Sun would change the esteemed business newspaper.

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Wealthy families, like everyone else, can generally be counted on to look after their own interests. But the phenomenon of supervoting class B shares has gained special prominence among those families who own leading newspapers, such as the Bancrofts, The Washington Post's (WPO) Grahams, and The New York Times' (NYT) Sulzbergers.

In these cases, the families see themselves as custodians of the "public trust" in an independent media, says James Walden, a media analyst at Morningstar (MORN). In addition to protecting the family fortune, they may also see themselves as serving freedom of the press, which may conflict with Wall Street's demand for constant growth. In a case like Ford or another dual-class company such as Wrigley (WWY), there may be less conflict between the priorities of insiders and normal investors, as the focus tends to stay on plain old profit and loss.

Dual-class share structure is not limited to old-line dynasties. Take search giant Google (GOOG), which decided before its 2004 initial public offering to allow insiders a larger degree of control over the company. While the company has argued that the dual-class shares provide a degree of immunity from Wall Street's demand for growth, S&P analyst Scott Kessler says it's an "open question" to what degree Google owes its remarkable financial performance to this freedom. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies (MHP), a media company with only one class of shares. The founding McGraw family has an extensive stake in the company.)