Last word on "two-class" ownership structure

At least the last word here -- at least unless something new and interesting turns up. It's not just newspapers, or Google, or the Ford Motor Company, or a slew of other firms where a family or group of founders want to retain disproportionate control. After the jump, details from a reader in Ohio about a successful real estate firm in Cleveland and its use of the technique.

A reader writes:


"Forest City (http://www.forestcity.net/about.asp), the Cleveland real estate behemoth, also uses the two-class stock structure you discuss. In case you haven't heard of them, Forest City is the nation's largest real estate firm, responsible for the New York Times' new building and the relocation of the New Jersey Nets.


"You can read about it in their proxy statement filed with the SEC:



At the annual meeting, the holders of Class A Common Stock will be entitled as a class to elect four (4) directors and will be entitled to one vote per share for this purpose. Michael P. Esposito, Jr., Joan K. Shafran, Louis Stokes and Stan Ross have been nominated for election to serve as these directors. At the annual meeting, the holders of Class B Common Stock will be entitled as a class to elect ten (10) directors and will be entitled to one vote per share for this purpose. Albert B. Ratner, Samuel H. Miller, Charles A. Ratner, James A. Ratner, Jerry V. Jarrett, Ronald A. Ratner, Scott S. Cowen, Brian J. Ratner, Deborah Ratner Salzberg and Bruce C. Ratner have been nominated for election to serve as these directors.



"And wouldn't you know it, it turns out Albert Ratner, Samuel Miller, Charles Ratner, etc., are all the biggest holders of Class B stock!


"The family nature of Forest City is one of the reasons its directors have built a political empire--with nearly 20 family members in the business, they can easily bundle their contributions and donate tens of thousands to a single candidate.


"It is also, presumably, a big reason why their firm is so successful. Direct control can reap direct benefits.


"But as much as a moral argument for two-class stock, there seems to be a basic economic argument against it. If you buy stock, and you aren't a degree of control proportionate to the amount of stock you bought, then what exactly are you buying?"