In praise of two-tier ownership

May 4, 2007, 4:46 PM UTC
Fortune

There’s been a bit of a hullabaloo recently about two-tiered ownership, especially at newspaper companies. A fund manager at Morgan Stanley has agitated for The New York Times Company (NYT) to end its structure that gives the Schulzberger family control without an economic majority. Don Graham, scion CEO of the Washington Post Co. (WPO), wrote an impassioned op-ed (subscription required) in The Wall Street Journal defending the device, which his company also uses. A bevy of letters in Thursday’s Journal uniformly condemned Graham’s position as elitist. Dual-class shares are in the news again this week because of News Corp.’s (NWS) bid for Journal publisher Dow Jones (DJ), which the Bancroft family controls despite its 25% economic interest.

Those in favor of two-tiered ownership typically at this point bring up how its good for newspapers to be held as a “public trust.” That’s true. It’s also beside the point. The primary job of a CEO is to act as the representative of the shareholders. The difference in a dual-class structure is that the company has said straight out, before you had the chance to buy the common stock, that some shareholders are more important than others. And it’s got nothing to do, legally, at least, with newspaper companies. Google (GOOG) chose such a structure because, according to the message its founders sent prospective shareholders in its 2004 IPO, it makes it “easier for our management team to follow the long term, innovative apprpoach.” Wall Street analysts don’t have to like their attitude, but that fact is that the Google founders recognized that companies do all sorts of goofy things to please Wall Street. And they weren’t going to play ball. They had an implicit message to anyone considering buying the stock. “We understand some investors do not favor dual class structures,” they wrote. Translation: If you don’t like it, don’t buy the stock.

Note that Rupert Murdoch isn’t commenting whether or not a dual-class stock is good or bad. He’s trying to make it difficult for the Bancroft family to turn down the money he’s offering them. No one forces anyone else to own a dual-class stock. If you don’t like the idea, vote with your feet.