The leaders of the three major stock exchanges agreed yesterday to take steps at their respective board meetings next month that could end a conflict over differences in listing standards that affect shareholder voting rights.
Yesterday's meeting was called after several members of Congress said that instead of the New York Stock Exchange lowering its listing standards to permit companies to have two classes of common stock with unequal voting rights, the American Stock Exchange and the over-the-counter market ought to raise their standards to require listed companies to have only one class of common stock.
NYSE Chairman John Phelan has said this would eliminate the competitive pressure on the NYSE to lower its listing standards and would preserve the nation's traditional "one share, one vote" system of corporate governance.
National Association of Securities Dealers President Gordon S. Macklin said yesterday he has agreed to put the issue before his board when it meets next month. He said that Amex Chairman Arthur Levitt also has agreed to put the issue on his board's agenda.
Macklin said he and NASD Chairman Peter D. Byrne would support a change in the over-the-counter market's listing standards only if the NYSE and Amex agree to back uniform state treatment of stocks traded in all major markets. Macklin said he wants the over-the-counter stocks to have the same "blue sky" exemption for its securities that is available to the NYSE and Amex issues, so that his companies will no longer have to deal with burdensome state registration requirements. "Blue sky" laws, adopted by some states to protect investors, impose registration and reporting requirements for new issues.
"Everyone seemed to be moving in the direction of wanting to raise their standards," said NYSE spokesman Richard Torrenzano. "The other exchanges agreed to at least review the one share, one vote issue at their board meetings next month. We would hope that will begin elaborate deliberations that could lead to votes on the issue by the respective boards in September."
Torrenzano said that if the other exchanges raised their listing standards, the NYSE would reject a proposal to lower its standards.
While current NYSE rules specify that all of the common stock of companies listed on the Big Board must have equal voting rights, the Amex and over-the-counter markets allow their listed companies to have different classes of common stock with disproportionate voting rights.
The creation of two classes of common stock -- with a new class controlling a majority of votes placed in friendly hands -- has become increasingly popular in an era when corporate managements are trying to find ways to prevent hostile takeover attempts.
Switching to two classes of stock and putting a safe majority of votes in friendly hands enables a corporation to block an unwanted takeover. Several NYSE companies interested in discouraging hostile takeover bids, including Dow Jones & Co., publisher of The Wall Street Journal, and Hershey Foods Corp., have adopted a second class of common stock.
Macklin said the leaders of the exchanges agreed that public companies that already have more than one class of common stock would be allowed to retain them.