In recent years, there has been increased focus on “short-termism” within public companies—some speculate that the rise of high frequency trading, activism, and similar developments have exacerbated the focus on short-term returns. A number of academics, including Patrick Bolton and Frederic Samama, have proposed contractual approaches to reward loyal holders of public companies through the issuance of L-shares or L-warrants. A stockholder that had held for a specified period (say, three years) would be entitled to receive a warrant to receive additional shares of the public company’s stock. One could envision any number of other alternative structures designed to reward long-term investors and a number of French and other European issuers already have adopted approaches designed to do just that. For U.S. investors, the concept may not be all that familiar. The proposed initial public offering of Ferrari (see http://www.sec.gov/Archives/edgar/data/1648416/000164841615000004/newbusinessnetherlands.htm) may present a fresh opportunity for U.S. investors to consider the loyalty share approach. The Netherlands-based company will adopt a “loyalty voting program.” Any holder can opt to participate in the loyalty voting program and, after a three-year holding period, the loyal holder will be entitled to receive one special voting share for each such common share that has been registered. U.S. IPO investors are fairly accustomed to dual-class and multiple-class voting structures, especially for IPO issuers that use an up-C IPO approach or have insiders that are intent on preserving control; however, they are not so familiar with rewarding loyalty.
