Big Board May End Its Rule of 1 Share, 1 Vote

The chairman of the New York Stock Exchange told Congress on Wednesday that it may prove impossible for the exchange to preserve its longstanding requirement that listed companies provide all common shareholders with one vote for each share owned.

John J. Phelan Jr. said he sees a trend developing whereby more and more companies, in a era of hostile takeover bids, will attempt to bolster their defenses by creating a second class of common stock having multiple votes per share, “with the expectation that this would enhance management’s control.”

Unlike other exchanges, the Big Board’s rules require the delisting of any company that does not offer the same voting rights to all common shareholders. But the NYSE board is scheduled to act next month on a special committee’s recommendation that the listing requirements be changed to permit new classes of stock with a voting differential of up to 10 to 1.

That means the new common shareholders could have as little as 5% of the equity and yet as much as 50% of the vote.

Arthur Levitt Jr., chairman of the American Stock Exchange, assailed the Big Board proposal, even though his own exchange already allows such practices.

“I do not want a race to the bottom” in exchange standards, Levitt said. “The New York Stock Exchange should not lower its standards. The National Assn. of Securities Dealers and the American Stock Exchange should raise theirs,” he said.

Levitt, Phelan and Gordon S. Macklin, president of the NASD, testified to the House subcommittee on telecommunications and consumer protection, which is considering a variety of legislative proposals designed to stem the hostile takeover wave.

“One share, one vote has served the market well,” Phelan said. “Philosophically, we still believe in it. And, in the best of all possible worlds, most people would probably want us to retain it. But the world is changing very rapidly.

“In the present environment,” he said, “when a company’s management and shareholders face the choice between remaining listed on the NYSE--but exposed to hostile or improvident takeover bids--or taking steps that may cause the exchange to delist the company, there is a good chance they will choose the latter course.

“The competitive environment may very well make it impossible for us, standing alone, to retain the one share, one vote rule,” Phelan said.