Reluctant Exchanges Back End to 1 Share, 1 Vote Rule

The heads of the nation’s two largest stock exchanges said Tuesday that they regretfully were prepared to let American corporations disenfranchise their stockholders to prevent hostile takeovers.

The chairmen of the New York and American stock exchanges told the Securities and Exchange Commission that they believed in the principle of “one share, one vote” but said competition among the exchanges might pressure them to abandon the concept.

The testimony came as the SEC heard testimony on a petition by the NYSE to lift the “one share, one vote” requirement.

For 60 years, the Big Board has required all of its listed companies to give shareholders of common stock equal voting rights. But corporate raiders have changed the “one share, one vote” principle from a platitude to a weapon by buying up common shares until they have control.

The spate of takeovers has prompted managers to prepare defenses, including limits on shareholder authority.

John Phelan, chairman of the NYSE, says his exchange cannot maintain the “one share, one vote” principle as a requirement for NYSE-listed corporations when companies seeking to dilute shareholder authority can move to competing exchanges without the rule.

Arthur Levitt Jr., the American Exchange chairman, said his exchange cannot hold to its weaker version of the rule if the Big Board is permitted to abandon the standard altogether.

And both chairmen blamed the National Assn. of Securities Dealers for failing to include any voting requirement on stocks traded in the over-the-counter market.

But NASD Chairman Gordon S. Macklin, testifying later, said that “there has been no evidence offered that would justify additional regulation” of over-the-counter stocks. He said 95% of stocks traded over the counter comply with the “one share, one vote” standard.

The proposed NYSE rule change would allow companies to issue two classes of common stock: one having limited or no voting power, and one with greater voting power. In practice, the former shares would be available for the general investing public while the latter would be held by management and its allies.

The Amex allows its listed companies to issue two classes of common stock, but with limits. The more powerful stock can have only 10 times the voting strength of the secondary class.

Phelan told the commission that the NYSE board supports “one share, one vote” in principle but cannot maintain that position in view of the weaker rule applying at the American Exchange.

He said the board was proposing instead to allow NYSE-listed companies to limit voting rights of stockholders only under carefully drawn requirements, including one that such changes be approved by a majority of all outstanding stock, not just a majority of stockholders voting.

“We would encourage all shareholders to hang on to their votes,” Phelan said. “But having voted on it, are we to come in and overrule them?”

Levitt urged the SEC to reject the Big Board’s proposed relaxation, predicting that “if this rule goes through, several hundred of the largest companies in America . . . will move to disenfranchise their stockholders.”

He said the Amex would be an unwilling partner in such a move. But he added that the American Exchange “cannot unilaterally maintain such standards not maintained by other markets. It would place us in a competitively untenable position.”

“Now is the time to be raising rather than lowering standards,” he said. “The Amex is prepared to do so” if the over-the-counter market also is included.

The change also is opposed by some in Congress and by takeover specialists.

Sen. Howard Metzenbaum (D-Ohio) has argued the change threatens public confidence in the market.