Document Type
Article
Publication Title
Journal of Corporation Law Digital
Publication Date
Fall 2025
Page Number
i
Keywords
contracting, strategic planning, IPO charter
Disciplines
Contracts | Law | Marketing Law
Abstract
Roberto Tallarita's Dual-Class Contracting confronts a question that scholars and policymakers have largely overlooked: once a firm opts out of "one-share, one-vote," how does it determine the degree and duration of voting inequality? This is not a binary choice between single- and dual-class structures, but a continuum with infinitely many possible configurations. To investigate this question, Tallarita assembled a dataset of 293 corporate charters from dual-class IPOs completed between 1996 and 2022. Despite the wide lati- tude finms have to tailor these arrangements, he finds that most converge on strikingly similar terms-granting holders of high-vote stock majority control with just 9-10% of the equity. This clustering is difficult to reconcile with traditional theories of contractual op- timization, which predict that firms will select governance structures that reflect their unique characteristics. Instead, Tallarita argues that issuer counsel-serving as custodians of prevailing "market norms"-are the primary drivers of this result. In his account, varia- tion in dual-class structures arises not from bespoke negotiation, but from occasional "mu- tations" introduced by norm entrepreneurs (such as Google's dual-class IPO in 2004) that rapidly diffuse across law firm networks. The remainder of this response is organized as follows. First, I describe the Article's contribution to empirical scholarship on dual-class structures. Second, I examine two sources of unobserved heterogeneity that complicate Tallarita's argument: (i) differences between firms that adopt a dual-class structure and those that do not, and (ii) variation in the percentage of equity retained by founders at the time of the IPO. To supplement Tal- larita's findings, I draw on data from my recent study of CEO turnover at dual-class firms, which reveals greater variation in actual voting control than the charter terms alone would suggest. Third, I explore when we should expect lawyer-driven norms, as opposed to mar- ket forces, to be the primary driver of contractual standardization. Specifically, I argue that dual-class voting arrangements appear to have no clear effect on shareholder value at the IPO stage, creating space for lawyer-driven norms to influence governance terms.
Recommended Citation
Brian Broughman,
Dual-Class Contracting--A Response to Roberto Tallarita, 49 Journal of Corporation Law Digital. i
(2025)
Available at: https://scholarship.law.vanderbilt.edu/faculty-publications/1724