Supervoting Shares = Poor Corporate Governance

Supervoting Shares = Poor Corporate Governance

The SEC ought not allow companies to issue supervoting or non-voting shares –  a method companies use to enable founders to exercise control beyond their share ownership. To my knowledge it has only been a few, high profile Technology companies that have used this trick.

Alphabet (tkr: GOOG) split its stock into three classes in 2014 where Class A shares received 1 vote, Class C shares received zero votes and Class B shares received 10 votes. This unusual stock split enabled Google founders Sergey Brin and Larry Page to maintain company control as their shareholdings dwindled. Brin and Page  were able to execute this controversial split in large part due to their supervoting (Class B) share holdings. We were not fans of the initial supervoting structure nor of the controversial three class stock split.

Facebook (tkr: FB) tried to issue a non-voting share class in 2016 to cement founder, CEO Mark Zuckerberg’s control even as he planned to give away 99% of his FB holdings. Thankfully large institutional investors defeated FB’s initiative.   

Snap (tkr: SNAP) founder, CEO Evan Spiegel benefits from a supervoting structure and shareholders are unfortunately stuck with him. Ironically, it was Instagram’s (tkr: FB) “Stories” feature that killed SNAP pre-IPO.  

Now Lyft (private) wishes to do the same on its IPO. I know personally that the SEC isn’t terribly concerned about the issue as we exchanged emails in January 2018. Therefore, it will be up to institutional investors to push back on this corporate governance issue.