The Social Costs (and Benefits) of Dual-Class Stock

Dual-class stock creates a two-tiered ownership structure that allows new investors to buy a piece of a fast-growing company, with just one catch: they become second-class shareholders who have little or no voting power in the corporation. A rich literature debates whether this arrangement, which cements founder control, is truly optimal for investors. This Article is the first to identify an entirely different type of problem: the structure’s social costs.This Article makes three contributions. First, it adds an essential yet missing dimension—social cost, or externalities—to the understanding of dual-class stock. Second, it connects the concept of social cost to two developments this century that have supercharged corporate influence on American life: the rise of dual-class platform companies like Google and Facebook and the widened scope of corporate constitutional rights under U.S. Supreme Court caselaw. The interaction of these changes gives two men (at Google) or even just one (at Facebook) a constitutional beachhead from which they can deploy vast corporate resources for personal as well as business ends. The Article then develops a policy playbook that is responsive to these problems yet grounded in a fair assessment of the structure’s benefits. These solutions can inform approaches to other externalities of the corporation as well.These contributions are both theoretical and practical in nature. They aim to curb the social costs of dual-class stock (and, optimistically, to nurture its social benefits) while preserving its private appeal to founders and investors