Stocks of Canadian companies with dual-class shares have outperformed, report says

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Analysts at CIBC say dual-class share arrangements have a greater potential to generate investor returns, despite potential threats to corporate governance

Proponents of dual-class shares say the structures enable founders to pursue a long-term vision for a company, rather than focus on quarterly results. They also argue that dual-class shares protect organizations from investor activism, which they say could stand in the way of the firm’s growth.

“In our view, the end goal from a corporate governance perspective should be one share, one vote,” the CIBC researchers stated. “However, there are arguments supporting the use of unequal voting.” Proxy advisory firm Institutional Shareholder Services announced late last year that, starting in 2023, it would recommend voting against certain directors of public companies with supervoting structures in the United States. But this policy does not currently apply to Canada, nor is ISS contemplating future changes at the moment, John Vizikas, head of Canadian research at ISS, said in an e-mail.

Many new public companies with high growth potential are coming to the market with dual-class shares. Critics who propose stricter regulations over the structures say that there must be mechanisms to protect investors, such as event-based sunset clauses. Those take effect, for instance, when a founder ceases to be relevant to the management of the business.

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