Although institutional investors have become somewhat less hostile toward the concept of dual class capital structures among newly public companies, they usually want to see some sort of sunset provisions baked into corporate charters that will cause the dual class structure to fall away after a period of time.

According to this white paper from Minerva Analytics, most companies with dual class share structures (DCSS) include some kind of sunset provision in their charter, but those usually don’t include the kind of sunset terms that investors prefer.  This excerpt summarizes Minerva’s findings:

Of the 259 US companies in Minerva’s coverage with capital structures with DCSS, almost four-fifths have at least one sunset provision in their governing documents – reflecting the growing incentive to transition to the one share, one vote structure. Only 24 companies have adopted time-based sunset provisions, of which six are compliant with the CII recommendation that sunset provisions are triggered within seven years. The remaining 28 companies’ provisions trigger in eight to 50 years.

Dilution-based sunset provisions have been adopted by 120 companies. Time- and dilution-based provisions are generally considered the most effective types of sunset provisions. This is because they provide clear and enforceable triggers that cannot be avoided to protect controlling shareholders. This means that once these provisions are triggered, they ensure automatic conversion to a single class of shares with one vote per share and is particularly the case for time-based provisions.

The white paper says that more than 40% of US technology IPOs retain dual class structures, while just 7% of Russell 3000 companies have them.

– John Jenkins