A New York Stock Exchange panel recommended yesterday that the exchange change its rules to allow listing by companies that issue different classes of common stock with unequal voting rights.
At present, NYSE rules specify that all of the common stock of listed companies must have equal voting rights, while the American Stock Exchange permits companies to have different classes of stock. As a result, some companies that have switched to two classes of stock -- putting a safe majority of votes in friendly hands to prevent a takeover -- have had to move from the Big Board to the Amex.
The panel, formed last July to study the NYSE's listing standards, proposed that a company with two classes of stock be accepted for listing provided certain conditions are met, such as approval by two-thirds of the company's shareholders.
If the recommendation is approved later this year by the exchange's board and the Securities and Exchange Commission, it could touch off a new battle between the NYSE and the American Stock Exchange to retain and attract listed companies.
However, some Wall Street experts are concerned that the proposed change would threaten the integrity of the NYSE, and that it would encourage widespread and rapid adoption of different classes of stock by many companies trying to prevent takeovers.
"I would hate to see any deterioration in the New York Stock Exchange's high standards for listing," said John C. Whitehead, recently retired senior partner of Goldman, Sachs & Co. "Taking any voting rights away from public stockholders is a very serious matter."
Andrew C. Sigler, chairman and chief executive officer of Champion International Corp., and cochairman of the panel that submitted the recommendation yesterday, said stringent conditions, including the approval of two-thirds of shareholders and approval by independent directors, would protect shareholder rights.
A rule change would allow the NYSE to drop delisting procedures -- which have been suspended pending a final ruling on the listing standards by the exchange's board of directors -- against Dow Jones & Co., publisher of The Wall Street Journal, and Hershey Foods Corp. Both were preparing to create new classes of stock.
A change in the rules also could permit corporations with two classes of stock that are listed on the Amex -- such as The New York Times Co. and The Washington Post Co. -- to switch to the Big Board.
"It is a possibility we would examine," said Guyon Knight, spokesman for The Washington Post Co., when asked if the company would move to the NYSE if the rules were changed.
"We have known this study is in the works, but until final rules are adopted by the Big Board, I don't think we will take it under consideration," said Elliott Sanger Jr., spokesman for The New York Times Co.
"I haven't seen the NYSE report and therefore cannot comment on it directly," said Arthur Levitt Jr., chairman of the Amex. "However, I feel the protection of shareholder rights is the highest priority and therefore hope that anyone concerned with this issue would support the principle."
Some Amex companies have two kinds, or classes, of common stock, frequently known as Class A and Class B shares. Frequently, voting shares are held by insiders and only nonvoting stock is sold to the public. 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.
Sigler said the NYSE adopted the present rules when it was the principal regulatory authority protecting shareholders. However, since that time, the creation of the SEC, the introduction of extensive reporting requirements for public companies, and the increased sophistication of shareholders -- many of whom are professional money managers -- have raised the question of whether the exchange needs or wants to continue regulating companies in this manner.
"We are saying that it is our feeling that if two-thirds of the shareholders of a company vote for something and have independent directors approve it, we think that is a powerful thing," Sigler said. "If shareholders approve that, who is the stock exchange to say they can't do it? Who the hell are we to say they are voting against their best interests?"
But some experts believe the measure is being supported by the management of large corporations because they view it as a way to create new classes of stock, prevent takeovers and retain control of the companies they run. Sigler responded to that idea by saying, "I don't think there is any defense to a takeover."
Fletcher L. Byrom, head of the NYSE's public policy committee, said he believes the rule change will be approved by the NYSE board and the SEC. "My guess is comments will be favorable," he said.
The NYSE's public policy committee will solicit comments on the proposed rule change from individual shareholders, member firms, institutional investors and listed companies before submitting the proposal to the exchange's board.
Companies would not lose listing rights by establishing two classes of common stock with disparate voting rights as long as they met the following conditions:
* Two-thirds of all shares entitled to vote on the proposition must give their approval.
* If the company has a majority of independent directors, a majority of such directors must approve the proposal.
* If the company has less than a majority of independent directors, then all of them must approve the stock arrangement.
* The ratio of voting differential between the two classes of stock can be no greater than 10-to-1.
* Rights of the holders of the two classes of common stock must be substantially the same except for voting power.