When minority shareholders are adequately protected by the legal framework and the corporate governance principles in place, multiple-votes shares allow all shareholders to benefit, according to a report published today in Montreal by the Institute for Governance of Private and Public Organizations.

Titled “Dual-class Shares in Canada: Review and Proposals”, the paper examines the various arguments, both favourable and unfavourable, concerning dual classes of shares. It concludes that, as long as minority shareholders are well protected, this capital structure provides all the advantages of continued, long-term commitment by the entrepreneur/founder.

The report also states that several research studies have shown that family firms, whose control is sometimes maintained by means of multiple voting shares, generally produce financial results of higher quality.

While underlining some of the positive aspects of multiple voting shares, the report highlights the importance of providing a proper framework to protect minority shareholders.

For example, in the case of a takeover bid, all shares should receive the same treatment. In the future, the voting ratio should be limited to four votes for multiple-votes shares, which means that the entrepreneur must invest at least 20% of the company’s voting capital in order to obtain 50% of the votes. At least one third of the directors should be elected exclusively by the minority shareholders.

This document has been approved by the Institute’s board of directors whose members include key figures from the Canadian financial sector such as Stephen Jarislowsky.

According to Professor Yvan Allaire,, the Institute’s chairman of the board and author of the document, multiple voting shares can easily be integrated into a governance that creates value for all shareholders.

In April 2005, there were 96 publicly held corporations in Canada whose capital structure included two classes of shares. Approximately one-third of these were Quebec-based corporations.