Ride-sharing company Lyft announced yesterday that its two co-founders, John Zimmer and Logan Green, are stepping down to manage the company’s day-to-day operations, although they retain their seats on the board. According to relevant regulatory filings, they actually have to hang around as “service providers” to receive the original stock award agreement. would result in a “100% acceleration” of these “time-based” vesting conditions.)
Like so many founders who have used multi-class voting structures to increase control in recent years, their original awards were fairly generous. Green and Zimmer have acquired super voting shares that give them 20 votes per share in perpetuity. A trustee maintains control until the last living co-founder dies.
it all seemed a little Radical, even if such arrangements have become more common in technology. Jay Ritter, now a professor at the University of Florida who tracks and analyzes IPOs and goes by the nickname Mr. IPO, said, if anything, that Lyft’s trajectory made shareholders worry about a dual-stock structure. It suggests that it could be even more soothing.
For one thing, with the exception of the founders of Google — who came up with an entirely new stock class in 2012 to stay in power — the founders lost their grip on power by selling their shares, and then one Converted to 1 vote.・One share system. For example, Green still controls his 20% of Lyft shareholder voting rights, but Zimmer now controls his 12% of the company’s voting rights, he told the WSJ yesterday. .
Even technology companies with dual-class shares are overseen by shareholders who are clear about what they can and cannot tolerate, Ritter said. Again, Lyft’s stock is trading 86% below its offering price as of today, a clear sign that investors (at least for now) have lost faith in the organization. I’m here.
Last night, we talked to Ritter about why stakeholders aren’t so opposed to supervoting stocks, even though now seems like the right time to do so. The excerpt from that conversation below has been lightly edited for length and clarity.
TC: Founder majority voting has become widespread over the last decade or so because even VCs and exchanges have done everything they can to appear founder-friendly. From 2012 to last year, according to your own research, the percentage of tech companies with dual-class stocks jumped from his 15% to 46%. Should we expect this to reverse course now that markets have tightened and money has not flowed so freely to founders?
JR: The bargaining power of founders and VCs has changed in the last year. It’s true. Public market investors weren’t keen on the founders having multiple voting shares. But as long as things are going well, we won’t put pressure on managers to let go of their super voting shares. One of the reasons US investors aren’t overly concerned about dual-class structures, he says, is that, on average, companies with dual-class structures benefit shareholders. It’s only when stock prices fall that people start to question.
Isn’t that what we’re seeing now?
In a general recession, stock prices often fall even though companies are performing according to plan.
Investors and public shareholders are therefore expected to remain complacent on the issue despite the market.
There aren’t many examples of entrenched management getting it wrong in recent years. There are cases of activist hedge funds saying, “I don’t think you’re pursuing the right strategy.” But one reason for complacency is that there are checks and balances. It’s not like in Russia, where management can loot a company and ordinary shareholders can’t do anything about it. They can vote with their feet. There are also shareholder lawsuits.These can be exploited, but their threat [keeps companies in check]We also know that when stock prices go up, CEOs are happier, but when stock prices do well, employees are happier too, especially in tech companies where employees have a great deal of stock-based compensation. ing.
WeWork’s original IPO plans famously fell apart in the fall of 2019, but Adam Neumann believes he has so much voting power in the company that he can pass it on to future generations of Neumann. I expected.
But when an attempt to go public backfires — [with the market saying] Just because SoftBank thinks it’s worth $47 billion doesn’t mean we think it’s worth it. He faced trade-offs. It was ‘I can stay in control or I can take a lot of money and walk away’ and ‘I’m rather poor and in control or richer and move on’. And he decided, “I will take the money.”
I think the Lyft founders have the same trade-offs.
Meta is perhaps a better example of a company whose CEO super-voting power has many uneasy, and recently the company leaned towards the Metaverse.
Years ago, when Facebook was still Facebook, Mark Zuckerberg suggested doing what Larry Page and Sergey Brin did at Google, but he met a lot of opposition and pushed through. I withdrew instead. Now, he gives up some votes if he wants to sell stocks to diversify his portfolio. Most of these companies with multiple voting rights are configured in such a way that when you sell it automatically converts him to a one share sale so whoever buys it gets no extra votes .
In a Bloomberg article today, I asked why there are so many family dynasties like the Murdochs and Sultzbergers in the media but not in the tech industry. What do you think?
The media industry is different than the technology industry. Forty years ago there was an analysis of dual-class companies, and at the time many of the dual-class companies were media. [Bancroft family, which previously owned the Wall Street Journal], Saltzburger with The New York Times.There were also many dual-class structures associated with gambling and alcohol companies before tech companies started [taking companies public with this structure in place]However, due to different motivations, family companies do not exist in the tech industry.The dual class structure is [solely] It means to keep the founder in control. Also, tech companies come and go pretty quickly. Technology allows us to be successful for years, but new competitors suddenly appear. . .
So, in your view, dual-class stock doesn’t go away if shareholders don’t like it. They don’t hate them enough to do something about them. is that so?
Investors will demand bigger discounts if they’re concerned that a stalwart management team has been pursuing stupid policies for years. That may have been the case with Adam Neumann. His control hasn’t made investors rave about the company. We also have employees, so there is a lot of implicit, if not explicit, pressure to maximize shareholder value. Founder’s whim. I would be surprised if they were gone.
