Hook stock (stock issued by a parent corporation and held by its subsidiary)

CFA General
#1

What is your opinion on “Hook Stocks”?

Whats the catch in creating these types of stock?

Is it ethical?

#2

Depends on what they are used for i think… nothing unethical about using this type of structure for compensation purposes.

#3

Thanks for your reply Klaudnine. How would the compensation structure work in this type of arrangement?

Theres not a lot of literature on hook stocks. And it looks quite fishy from my view point, because the board of the parent and the subsidiary is often the same, and representatives of both boards are largely controlled by the same majority shareholder. In other words, that shareholder exercise tremendous power over both companies.

Appreciate if you can help me understand that there are some logical (bonafide) situations where it can be useful.