The Downside of the Market's Class System

When a company goes public, it must tell shareholders how it plans to govern itself. The new owners are promised a piece of the profits and a say in how the company is run. The standard arrangement for apportioning control is “one share, one vote.” That’s a good, tried-and-tested design, but it seems to be going out of fashion.

Planned initial public offerings by two large Internet companies, Twitter and Alibaba Group Holding, are putting a spotlight on dual-class ownership, which gives certain shareholders fewer voting rights or none. Dual shares, often known as Class A and Class B stock, until recently were out of favor, but they are making a spectacular comeback, especially among technology companies. Google led the way with its 2004 IPO, followed by LinkedIn, Groupon, Zynga, and Facebook, which all have two or more share classes.