RE: [Discuss-sudbury-model] Re: First Amendment Schools

From: Eli Roth <>
Date: Thu Nov 16 16:35:14 2006

Neither of the problems you cite are directly related to the dual-class
voting system and neither is exclusive to corporations with a dual-class
voting system. Nor does a dual-class voting system always result in
these problems. Each of the problems you cite results from there being
a shareholder or block of shareholders holding a "controlling" share of
the corporation, thus being able to exert power. In a democracy, this
would be unacceptable. In a corporation, where shareholders are buying
votes, those who purchase the most shares, purchase the most votes.
Like the Sudbury Model, there is no compulsion to participate in the
system. Minority ("non-controlling") shareholders are almost always
free to sell their shares if they do not like the power structure of the
corporation in which they have invested. Consumers are free to purchase
elsewhere. Employees are free to find work elsewhere, although they may
have compelling reasons to continue working for a company with
management that they disagree with.
In addition, there are other remedies available for misuse of corporate
power. The system is not hidden from those who chose to participate in
Eli Roth
-----Original Message-----
[] On Behalf Of
Sent: Thursday, November 16, 2006 10:33 AM
Subject: [Discuss-sudbury-model] Re: First Amendment Schools
Separately, someone on this list thought I was unfair in casting
aspersion on The New York Times' two-class share structure, in which
certain shares hold disproportionate voting power. Here is why I don't
like dual-class voting structures. In the academic literature on
corporate governance, it is well known that two of the key "agency"
problems afflicting corporations are:
1. The ability of a company's largest shareholder to use its leverage to
extract disproportionate value from the corporation, for example by
making favorable deals with management concerning purchases or sales of
assets. (This problem is more prevalent outside the US, though it is not
unknown here.)
2. The ability of corporate management to extract disproportionate value
from the corporation. Often this takes the form of excessive
compensation or by managers purchasing part of the company in
sweetheart, no-auction deals.
 Dual class share structures result in both of these problems. Yes,
there may be "valid" reasons for a dual-class structure, but I'm sure
there are equally valid reasons why China and Saudi Arabia are governed
the way they are. A dual class structure permanently entrenches some
relatively small group, which of course uses its power to benefit itself
disproportionately. The basic idea behind democracy is that it disperses
Received on Thu Nov 16 2006 - 16:33:45 EST

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