A recent boardroom clash at Rogers Communications Inc. has revealed the governance risk associated with dual-class share companies, but experts say businesses with that structure can be hard to avoid for investors because they're big profit generators.
Companies with dual-class shares issue different sets of common shares that have different voting and control rights. This often gives one group of shareholders an outsized share of those rights, typically the firm's founders, family members or executives.
Because Edward Rogers controlled 97.5 per cent of the telecommunication's firm's Class A shares, he was able to replace five board members over objections from other directors including his mother and sisters."The worst case is what we see at Rogers now," said Francois Dauphin, chief executive of the Institute for Governance of Private and Public Organizations in Montreal.
While Dauphin understands why people might worry about dual-class shares, he thinks they often make favourable investments because of the influence they have on entrepreneurs. However, for Alexander Dyck, professor of finance, economic analysis and policy at the University of Toronto, the protection against hostile takeovers is what he finds problematic.
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