A New York Stock Exchange panel will recommend next Thursday that the exchange's rules be changed to permit companies with different classes of common stock to be listed on the Big Board, the subcommittee's chairman, Washington attorney A. A. Sommer Jr., said yesterday.
At present, exchange rules specify that all of the common stock of listed companies must have equal voting rights, but several NYSE companies have created or are considering creating two classes of stock. Giving some stockholders greater voting rights than others is a technique used most often to assure control by existing shareholders or to prevent unfriendly takeovers.
Pending a final ruling by the exchange's board of directors, the exchange has suspended delisting procedures against several companies that were preparing to create new classes of stock, including Dow Jones & Co., publisher of The Wall Street Journal, and Hershey Foods Corp.
A change in the NYSE's rules could permit corporations with two classes of stock -- such as The New York Times Co. and The Washington Post Co., both listed on the American Stock Exchange -- to be listed on the Big Board, if they chose to make the switch.
Many Amex companies have two different kinds of stock, frequently known as Class A and Class B shares. With some -- such as The Post Co. -- voting shares are held by insiders and only nonvoting stock is sold to the public; others, like BDM International Corp. of McLean, give one class of stock 10 votes per share and other shares only one vote.
"Last year, a couple of companies left the New York Stock Exchange because they wanted to adopt 'A' and 'B' stock," Sommer said. "We think conditions have changed since the time the present rule was adopted."
Sommer said the NYSE rule, like many others that might be changed, was adopted when the NYSE was the principal regulatory authority to protect stockholders. However, he said, the creation of the Securities and Exchange Commission and the introduction of extensive reporting requirements for public companies have left the NYSE wondering whether it needs or wants to continue regulating companies in this manner.
He said some regulators and exchange officials are concerned that the integrity of the NYSE might be threatened by loosening such standards, and stressed that the NYSE will continue to regulate companies. He added that no one on the study committee favors giving blanket permission for the creation of various classes of common stock, but almost all would grant permission subject to conditions which are still being drafted.
"They think the rules ought to be moderated but not thrown out totally," Sommer said. "Some members say if shareholders want to deprive themselves of certain rights, what right does the exchange have to prevent them from doing it? It is a classic case of freedom versus paternalism."
NYSE spokesman Richard Torrenzano said the exchange committee is expected to make its final recommendation to the board in February or March. He said the subcommittee is looking at what the NYSE should be doing to protect stockholder rights and has the issue of different classes of common stock at the top of its agenda.
Last July, the NYSE announced that it was undertaking a major review of its role in protecting shareholder rights. In the July 11 statement, the NYSE said the subcommittee's report will be reviewed by the exchange's public policy committee, which will make a presentation to the exchange's board of directors.
The committee's mandate is to review NYSE shareholder approval policies to determine what corporate actions must be brought to shareolders for their approval, and, as in the case of different classes of common stock with disproportionate voting rights, to review those situations in which shareholder approval should prevail over exchange policies.