Kirby Smith has posted The Agency Costs of Equal Treatment Clauses (127 Yale Law Journal Forum 543 (2017)) on SSRN. Here is the abstract:
Founders want to maintain control over their companies. One way to do that is to use multiclass share structures. These structures allow founders to maintain control over business decisions despite decreasing their economic ownership in their companies. An overlooked feature of these new multiclass share offerings is the equal treatment clause — a clause that requires all share classes to receive equal consideration in the event of an acquisition. This Essay explores the agency costs associated with these clauses. Despite these clauses’ benign appearance, this Essay shows that they can influence a controller’s decision to sell. In effect, these clauses create another hurdle to the sale of a controlled company to the potential detriment of minority shareholders. After documenting this phenomenon, this Essay discusses the strengths and weaknesses of two potential solutions: complete removal or embedding a control premium in the articles of incorporation of founder-controlled companies.