For a generation of founders, dual-class stock has been the corporate suit of armor: super-voting shares keep control in friendly hands while public capital foots the bill. For a generation of investors, it’s been a nagging governance compromise, tolerated when the story is compelling and punished when it isn’t. The truth sits in the gray: dual-class structures can protect long-term bets and distinctive leadership, but they also amplify agency problems as companies age—and markets have learned to price that risk.

The original sales pitch is straightforward. When a company goes public with one class of stock that carries, say, 10 votes per share and another with one vote or none, founders can pursue lumpy, long-horizon strategies without looking over their shoulder at quarterly tempests or activist campaigns. There’s a reason so many modern tech champions adopted some version of this. The separation of cash-flow rights from voting power lets entrepreneurs keep a grip on the wheel even as their economic stake falls. That separation is exactly what makes the structure alluring—and what makes it hazardous.

The academic record reflects the trade-off. A foundational study by Paul Gompers, Joy Ishii, and Andrew Metrick looked across U.S. dual-class firms and found a clean pattern: the more insider voting rights outstrip insiders’ economic ownership, the lower the firm’s value; conversely, value rises with insiders’ actual cash-flow stake. Mechanically, insulating control while decoupling it from financial exposure tends to erode discipline. Put simply, wedges between control and ownership matter, and markets notice. (Gompers, Ishii & Metrick, “Extreme Governance: An Analysis of Dual-Class Companies in the United States,”

A second line of evidence drills into behavior inside dual-class firms. Ronald Masulis, Cong Wang, and Fei Xie document that as the voting-ownership wedge widens, cash is worth less to outside shareholders, CEO pay runs higher, acquisitions are more likely to destroy value, and capital spending contributes less to shareholder returns. Those are textbook agency-cost symptoms, and they get worse as the insulation grows. The punchline is not that dual-class is always bad, but that the costs scale with the gap between control and skin in the game.

Even supporters concede the structure ages badly. A sweeping study by Martijn Cremers, Beni Lauterbach, and Anete Pajuste traces valuations over time and finds a pattern most practitioners recognize: at IPO, dual-class companies often fetch a premium—arguably reflecting founder know-how and a bold strategic path—but roughly seven to nine years later that premium tends to disappear and flip into a discount. As founders diversify and the wedge widens, agency costs intensify, and the market haircut grows. That lifecycle logic now underpins many investors’ push for “sunset” provisions.

If lifecycle is the empirical drumbeat, sunsets are the policy refrain. Harvard’s Lucian Bebchuk and Kobi Kastiel argue the case against perpetual dual-class with lawyerly clarity: whatever benefits exist at IPO tend to decay, while the costs rise, and controllers face powerful incentives to retain power even when it’s no longer efficient. Their solution is not a blanket ban but a fuse—automatic time-based sunsets unless unaffiliated shareholders vote to extend. That keeps the structure when it still earns its keep and removes it once it doesn’t.

Index politics have swung with the pendulum. In 2017, S&P Dow Jones barred new multi-class companies from joining the S&P Composite 1500 (which includes the S&P 500), a move cheered by governance advocates who saw it as a carrot for one-share-one-vote and a stick for newcomers with unequal voting rights. In April 2023, S&P reversed that exclusion, reopening the door to multi-class companies that otherwise meet eligibility criteria; tracking stocks remain ineligible. The reversal acknowledged that a broad market index should reflect the actual market—and that many of the era’s growth companies were structurally out.

So where does that leave boards and investors? The strongest argument for dual-class is strategic continuity. There are moments when the market’s preference for near-term certainty collides with the messy work of building moats—replatforming products, absorbing fixed costs ahead of scale, or tolerating periods of lower margins to win a category. Super-voting shares can buy time and fend off shallow takeovers. They can also be a credible commitment to partners, employees, and customers that the company won’t pivot to appease a transient crowd. When the founder’s edge is real and the capital allocation is rational, the structure can be a net positive—at least early on.

The case against rests on incentive drift. As controllers sell down, the fraction of downside they bear shrinks even as their decision rights remain intact. That asymmetry can weaken discipline around pay, deals, and capital budgeting; it can also chill healthy scrutiny because the market for corporate control is blunted. Over long arcs, this is how once-inspired governance calcifies into entrenchment. The evidence is not moralistic; it is statistical. Wedges predict discounts, and bigger wedges predict bigger ones.

Investors have adapted. Many demand explicit sunsets—time-based (for example, seven, ten, or fifteen years), event-based (loss of founder-CEO status), or vote-based (a periodic reapproval by unaffiliated holders). Others seek safeguards that narrow the wedge over time, commit to one-share-one-vote at unification, or tie super-votes to limited “mission-critical” matters. Passive money now faces fewer index-eligibility roadblocks in the U.S. after S&P’s 2023 pivot, but practitioners still haircut governance risk in valuation work, especially as the IPO glow fades.

That doesn’t make dual-class an anachronism. It makes it a tool, best used with instructions and an expiry date. If you believe in the founder’s vision and the capital plan, the structure can be a feature, not a bug, for a time. If you worry about what happens when vision meets middle age—or when the architect cashes out but keeps the keys—then the prudent course is to demand the fuse up front.