One family-one vote? Rewarding family loyalty with multiple voting rights. First evidence from Italy

Onesti Tiziano, Romano Mauro, Cirillo Alessandro

A significant issue in the corporate governance field arises from the separation of ownership and control, namely, when there is a deviation from the “one share-one vote” principle. Facebook, Google and Groupon are well-known examples of how a controlling shareholder can enhance his/her power with a limited share of equity capital using dual-class shares. Such shares allow their owners to hold a disproportionate amount of power relative to their equity ownership. These powerful instruments concentrate control in the hands of controlling shareholders. Although several studies of this phenomenon use the US as a research context (Saggese et al., 2015), Sweden ranks first in the use of dual class shares (La Porta et al., 2000). The one share-one vote principle is rooted in the notion that voting power should be proportional to economic risk. However, dual class shares are only one of several mechanisms that facilitate such deviation. Literature refers to Control-Enhancing Mechanisms (CEMs) to indicate such instruments. That is to say, CEMs are tools to deviate from the proportionality principle. In continental Europe, controlling shareholders often use several CEMs: pyramid structures, multiple control chains, multiple voting rights and cross shareholding (Zattoni and Cuomo, 2010). Such CEMs “are a source of agency costs in that they increase the private benefits of control and conflicts of interest and therefore may came at an expense for the non-controlling shareholders” (HLG, 2002, p.30). […]

Key-Words: Entrepreneurship and Family Business

Table 1 – Family firms’ characteristics

Table 2 – Shareholders’ meeting characteristics