Dual-Class Contracting.

Dual-class companies are often touted as an example of contractual customization of corporate governance, based on the view that they deviate from the default rule of "one share, one vote" to fit the specific characteristics of individual companies. But voting inequality is a spectrum, not a binary choice, and we know little about how different dual-class companies choose their level of voting inequality along this spectrum. In this Article, I seek to shed light on this phenomenon by presenting and discussing quantitative and qualitative data on dual-class IPOs, including a comprehensive sample of dual-class charters and a survey of capital markets lawyers with expertise in dual-class IPOs. The corporate charters analyzed span 27 years, from 1996 to 2022, and the survey respondents include more than three dozen partners of law firms that have represented over two-thirds of the U.S. dual-class companies that have gone public in the past decade. This Article has three main goals. The first is to map the dual-class landscape and to document standardization and customization of voting inequality across almost 300 companies and three decades. The second is to reconstruct the "contracting process" that shapes dual-class charters and the role of key market players in this process. The third is to situate this real-world picture within the standard framework of the "classic contractarian theory," the richer and more nuanced insights of "modern contractarian theories," and the work of sociologists and economists on the emergence and evolution of social norms. The resulting picture shows that, despite a broad spectrum of possible tailor-made options, most dual-class companies choose similar or identical levels of voting inequality, innovation in market practice happens quite rapidly after long periods of equilibrium, and lawyers perceive themselves as playing a much more important role than investment bankers in shaping the "dual-class contract." I suggest that both the traditional account of contractual optimization and the more nuanced theories of learning externalities and agency problems are insufficient to explain some peculiarities of dual-class contracting. I propose an alternative conjecture in which "market norms" play an important role alongside atomistic contracting, lawyers serve a crucial sociological function as transmitters of these norms, and "norm innovation" happens less through rational design than through random mutation and the deliberate action of "norm entrepreneurs." [ABSTRACT FROM AUTHOR]