Andrew Meadows, Hugh Muir, Lucy Kellaway, Will Hutton, Justin Wolfers, Will Hutton, Gaby Hinsliff, Brendan Barber and Aditya Chakrabortty debate whether dual-class share structures are bad for business
Do dual-class share structures have a harmful effect on businesses?
Lucy Kellaway: Yes. Companies are not just about money. They are about values. Boards were supposed to represent those values. Shareholdings should reflect that.
Gaby Hinsliff: For too long directors and shareholders have not been running companies together. These companies have prioritised shares and dividends, which are nice, but they have been missing those core values of ethics and responsibility that companies must be run by.
It is not just about companies doing well for shareholders. Boards should reflect not just what investors want, but what they want to share in. This is a sign of a corporate culture that is rotten.
Judith Owen: There is no need for shareholders to have the power to put in place a three-to-one ratio between the number of ordinary shares they hold and their proportion of voting rights.
Andrew Meadows: The doctrine of dual-class shares is based on the idea that one class of shareholders does not have a right to influence management. People do that because it’s their right, but that principle goes in reverse to the point that companies will favour those who speak for them over those who speak for the other shareholders. It’s a fundamentally flawed view of how the world works.
There are structures that operate in support of shareholders and boards discussing whether a company does or does not do something but where those structures have become bogged down in personalities and relationships, and where there is irreconcilable dislike of the other parts of the board. Some businesses have to be taken over and there are other shareholders out there who do not like the governance of that company, so they will exercise their right to buy it.
Chief executives cannot spend their lives dealing with shareholders. They have too much on their plate. In the end the shareholding share base is just one form of the investor base and the share base is very fragmented.
In Britain, most of the shareholding is still passive, where companies go to an individual’s account and put a few shares in the bank account, rather than building the share base.
Mourners carry the coffin of philanthropist, writer and businessman Julian Metcalfe at his funeral service in London in January. Photograph: Yui Mok/PA
Do many entrepreneurial individuals struggle to deliver value, and to retain control?
Hugh Muir: There are a wide range of entrepreneurial people running, creating or changing companies all the time. There are so many roles in a corporate life. Some are incredibly focused, and focused on the business and leaving a legacy. They are people who are well placed to lead companies to success but it’s about choosing who to turn their hand to. Business has to keep on wanting the best for its owners.
Will Hutton: Yes, CEOs are hugely lucky to be the person who decides who has control of their company, so you’re going to pay an enormous premium to keep them. But boards have to be small enough that you can have a two-person conversation, not many more executives deciding what you are doing.
Mourners stand outside the apartment of John Jay, the founder of Sage, an IT company, who was killed in a balcony fall in Luxembourg in April. Photograph: Roni Allouache/EPA
Do dual-class share structures lead to bad company governance and give investors too much power?
Hugh Muir: There are so many companies that are underperforming that I believe investors should be given a lot more powers. You might say that the owners of a private business should not be allowed to shake up the board at all.
Will Hutton: I would go further. The owners should be able to call an extraordinary general meeting to remove directors who are performing badly. We have a charter saying shareholders must put up their hands and say they want their director removed if they feel like it, so we should give them a mechanism for doing it.
Gaby Hinsliff: I disagree with that. Shareholders are being diluted when a new investor has too much of a stake.
The Saturday Debate, BBC Radio 4