Voting to end a 60-year-old rule that has been one of the cornerstones of its listing standards, the board of the New York Stock Exchange on Thursday approved the creation of multiple classes of common stock by Big Board companies.
The change must be approved by the Securities and Exchange Commission, which will consider it after its staff produces an analysis.
Among the arguments certain to be brought before the commission are those by supporters, who contend that the change is essential to allow the exchange to compete with stock markets featuring more liberal rules, and those by critics, who argue that multiple stock classes unfairly dilute shareholder voting rights and enhance the ability of corporate insiders to control companies while holding minority stakes.
If the SEC approves the change, the most immediate effect would be on 22 New York Stock Exchange-listed companies that have already instituted multiple classes of common stock providing holders with differing voting or dividend rights. The companies had faced “delisting"--expulsion from trading on the Big Board--although proceedings against them had been suspended for up to two years while the exchange considered a change.
Notable among the companies are General Motors, which issued two new classes of common stock in 1984 and 1985 after its acquisitions of Electronic Data Systems and Hughes Aircraft; Dow Jones, whose dominant family owners instituted a second class of stock with inferior voting rights to enhance their control of the publisher of the Wall Street Journal; American Family, a cancer insurer that granted long-term stockholders greater voting power than short-term owners, and Hershey Foods, which established a dual-class structure to maintain the corporate control of a trust that supports an orphanage established by the chocolate company’s founder.
Must Get Shareholder OK
One other company, Ford Motor, has had a dual-class structure designed to protect the Ford family’s control since it joined the NYSE in 1956. Ford was not subject to delisting.
The change approved by the board of the exchange is based on a proposal drafted in January, 1985, by a task force headed by former SEC Commissioner A. A. Sommer and Andrew Sigler, chairman of Champion International.
The rule requires companies wishing to install multiple stock classes to obtain the approval of holders of a majority of all publicly held shares--that is, shares not owned by directors and top executives--as well as a majority of independent directors. This is seen as a more restrictive rule than that of the Sommer-Sigler group, which required the approval of two-thirds of all shareholders and of a majority of independent directors or of the entire board if outside directors were a minority.