Christie's International PLC and Sotheby's Holdings are the two largest fine arts auction houses in the world. In January 2000, the announcement that Christie's had agreed to cooperate with the U.S.
Justice Department in its investigation of price fixing sent Sotheby's stock down $3.50 per share (or 15 percent) to $20.50. In return for amnesty, Christie's admitted that it had conspired with Sotheby's to fix auction commissions. Price fixing is illegal under American and European antitrust laws. Ultimately, lawsuits were settled for hundreds of millions of dollars and Sotheby's chairman, Alfred Taubman, was sentenced to a jail term and a $7.5 million fine.

Prior to the price-fixing scandal, Sotheby's had two classes of common stock. Each of the 42,269,201 Class A shares was entitled to one vote, while each of the 16,585,650 Class B shares was entitled to 10 votes. Taubman, who owned much of the Class B stock (known as "killer B's"), controlled the company with 62.5 percent of the voting rights but had only 23 percent of the cash-flow rights. Baron Capital Group (headed by Ron Baron) in contrast was entitled to 40 percent of the cash flows, but had only 11 percent of the voting rights.

Prior to the scandal becoming public, Ron Baron indicated that he had significant faith in Taubman's leadership and was not concerned about Taubman's control through his ownership of the "killer B" stock. After the scandal became public and the stock price fell, significant conflict arose between Baron and Taubman. Baron wanted Taubman and his son to leave the company. Baron feared that Taubman's incentives were no longer aligned with the company and its shareholders, and that he might use company funds in an unreasonable legal settlement to protect himself from prosecution.
The Taubmans refused to give up control, and Baron did not have enough votes to force them to leave. In a screaming match with Baron, son Robert Taubman announced that his family had no intention of giving up control of their company.

Ultimately the conflict was resolved. However, this example illustrates the conflicts that can arise when there is a separation of ownership and control rights. The Taubmans would have been forced to give up control of the company more quickly if, as in the typical company, their claim for 23 percent of the cash flows was associated with 23 percent of the voting rights. (Note that this conflict does not imply that it necessarily was suboptimal for Sotheby's to issue dual-class shares when they originally were sold. But it does illustrate vividly some of the costs associated with dual-class shares that can arise after the fact.) 

The governance structure at Sotheby's appeared to give Taubman absolute control. Nevertheless the company was able to resolve the antitrust problem relatively quickly without significant opportunism by Taubman. Ultimately, this resolution helped to limit the losses to minority shareholders.

What forces and incentive mechanisms helped this settlement come to pass?