The Lifecycle Theory of Dual-Class Structures

Abstract

This academic presentation, based on our joint work on dual-class structures, was delivered by Lucian Bebchuk as his keynote address to the December 2018 ECGI-BIU conference on differential voting structures. The presentation focuses on the lifecycle theory of dual-class structure introduced in Bebchuk and Kastiel, The Untenable Case for Perpetual Dual-Class Stock, 2017 (https://ssrn.com/abstract=2954630). The presentation begins with discussion of precursor works to, and the motivation for developing, the lifecycle theory. The presentation then proceeds to describing the elements of the theory. In particular, it explains the reasons for expecting the efficiency benefits of dual-class structures to decline over time; for the efficiency costs to increase over time; and for controllers to choose to retain a dual-class structure even when it ceases to be efficient. The presentation also discusses a number of cases that vividly illustrate arguments advanced by the lifecycle theory. Among cases discussed are dual-class companies Viacom, CBS, and Facebook, as well as single-class companies Amazon, Microsoft and Yahoo!. We also explain that time-based sunsets can address the identified problems, and we discuss the design of, and objections to, such sunsets. Finally, we discuss the influence that our lifecycle theory has had on subsequent policy discourse and on empirical work testing the theory’s predictions. The presentation concludes that the lifecycle theory has solid theoretical foundations and is confirmed by recent empirical testing. We hope that the lifecycle theory that we introduced will continue to prove useful for researchers and policymakers and to contribute to the adoption of dual-class sunsets.