Dual-Class Ownership
Dual-Class Ownership: a short-lived 1980s buddy sitcom about an upper class snob and working class shlub who end up co-owners in a water taxi service in the Florida Keys.
Also, the term refers to the ownership structure of some companies.
Owning stock comes with two basic benefits. One is economic. You are entitled to the financial benefits the company produces (assuming there are any).
The other benefit is managerial. You get to be in charge. The owners (meaning the stockholders) ultimately decide things like who gets to be CEO or whether or not the company will sell itself to the mega-conglomerate buying up all the competition.
Under the dual-class system, the company will issue two types of shares, called classes. Typically, they get identified as Class A and Class B (though, it would be amazing if a company got a little more creative and went with something like Class Zipper and Class Buttonfly).
The two classes will have different mixes of economic and voting powers.
You start a frozen custard stand with your cousin. However, you're afraid your cousin will stage a coup someday and wrestle control of Custard Heaven from you. To prevent this, you create two classes of stock: Class A and Class B. Class A has all the economic benefits. These shares, you and your cousin split 50/50. Class B shares have all the voting/decision-making power. You take 75% of the Class B shares and leave him with 25%.
All the financial rewards from Custard Heaven are split 50/50, in accordance with the split of Class A shares. When the stand has $100,000 in cash for dividends, you get $50,000 and your cousin gets $50,000.
However, when it comes to decide whether to open a second location or whether you're going to sell out to Devil Custard down the street, you get 3/4 of the decision power, because that's how much Class B stock you own.
The takeover offer comes in from Devil Custard. Your cousin says "yes." You say "no." The result isn't a tie...you win, because you hold 75% of the voting Class B shares. He only has 25%.
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Finance: How does a board of directors f...27 Views
Finance a la Shmoop! How does a board of directors function?
All right, well structurally, the Board of Directors has really one function, after
it is elected by a vote, of the common shareholders, of the company. The board of
recruits, then hires the CEO and that's not necessarily easy. Because, most
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]
from which they have to be bought away. Picking the right CEO, is the big
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
CEO can be all three. After being hired the CEO then hires everyone else, more or
less. In a public company, the board divides into committees, to advise and
oversee many of the little processes. There's audit committee people and
nomination and government committee people and Compensation Committee people.
In large companies there are also, often subcommittees, that focus on narrow
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
you work for a big polluter. Well another big element of board value-add, revolves
around, strategy. Are we the high cost, high value company, or are we the low cost,
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
Land? What other strategic issues are we fighting? How do we get into China and [world map]
Russia and get out of Somalia? So yeah, that's strategy. How does the
board cover its primary obligations, in providing a fiduciary duty, to the
shareholders, who elected them? Is the board governing fairly and equitably?
Yeah, how do they do that? Well they just basically pay attention, right? Are
company policies racist, or gender biased, or ageist?
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
right controls inspected, like audit, hiring, firing, policies and our
companies casual Fridays, have they gotten to just to casual? Is that a board item?
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]
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