Office chat app Slack’s direct market listing has proved the staying power of dual-class stock. The share price may have dipped since opening at $38.50 but it trades at a premium to the top price paid in private markets. The S&P Dow Jones Indices can ban companies with dual-class shares from joining the benchmark index. The Council of Institutional Investors can call them egregious. But public companies that concentrate voting power are now the norm in Silicon Valley.
That dominance reflects the myth that founders have a preternatural understanding of their business. Successful early adopters help. Google was one of the first to introduce the idea in 2004. Its share price has since grown from $85 to $1,115. Companies claim the set up allows executives to focus on longer-term goals than fickle capital markets permit. But it can also rob shareholders of their voice.
Sunset clauses that phase extra voting rights out over time are an obvious middle ground and are gaining traction. In 10 years, all outstanding Slack shares will convert to common stock without extraordinary votes.
The second option is to push for a limit on total voting rights. Slack’s top shareholders received 10 votes per share, compared to just one for new investors. As a result, founder Stewart Butterfield has 17.8 per cent of voting rights. In total, however, executives have just over 52 per cent of voting power. Facebook’s Mark Zuckerberg has about 60 per cent of the voting power. Social media network Snap sold shares to the public with zero voting rights, leaving its co-founders with 97 per cent of votes. Ride-hailing group Lyft gave two co-founders, Logan Green and John Zimmer, shares with 20 votes apiece. Together they control less than half of all voting rights.
Asking for boundaries in dual-class listings will achieve more than calling for a ban. Last year dual-class floats outperformed the broader index. Until they lag, executives will have no incentive to stop awarding themselves disproportionate voting rights.
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