dual-class stock

The Innovation Illusion: How So Little Is Created by So Many Working So Hard
by Fredrik Erixon and Bjorn Weigel
Published 3 Oct 2016

With the current structure of savings in the Western world, companies could not do without gray investors and their capital, and reduced access to their resources can make capitalism lose a key input. Hence, clearing out gray asset managers cannot be the purpose of reforms. Actions have to be focused on differentiation between forms of ownership. One way to sever the link is to grant companies greater freedom to discriminate between owners by expanding the usage of dual class stock structures. Active ownership is prioritized by different rules for dividends and voting rights. With increasing size and numbers of owners, maintaining entrepreneurial leadership becomes increasingly challenging, and when entrepreneurial leadership is weak, company development slows down. A successful company-builder like Warren Buffett’s Berkshire Hathaway, for example, differentiates between Class A and Class B common stocks.27 When first introduced, Class B shares traded for 1/30th of Class A’s stock price and carried lower voting rights.

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Ownership differentiation is a red rag for many in corporate finance. Regulators do not like it either and tend to root for ownership democracy. In Europe, authorities have made efforts to remove ownership discrimination, and less than a decade ago there was a political campaign to rule out dual class stocks entirely. A key argument has been that discriminative share structures suppress ownership, and with references to investor and ownership behavior from earlier decades, that argument has not been difficult to prove. However, the world is different now. Ownership has already become inactive (or gray) and the big challenge is no longer old ownership, or the corporatist cultures in companies that were previously run by founding families.

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(i) cargo services and deregulation (i) see also air cargo services cash hoarding (corporate savings) (i), (ii), (iii), (iv), (v) catalytic converter technology (i) Central Europe, German-Central European supply chain (i), (ii) chemicals, and EU regulation (i), (ii) Chicago school of economics (i) Chili, and Cybersyn project (i) China and BRIC concept (i), (ii) exports from European Union (i) GDP (2014) (i), (ii) and globalization (i), (ii), (iii) R&D spending (i) sovereign wealth fund (i) Christensen, Clayton (i), (ii) Churchill, Winston (i) Clark, Gregory (i), (ii)n41 classical market liberalism (i) Clinton, Bill (i) Club des Chiffrephiles (i) Coase, Ronald (i), (ii), (iii), (iv), (v) Coca-Cola (i) Code of Federal Regulations (US) (i) cognition, mechanistic vs. organic (i) collaboration “noise” (i) Comin, Diego (i) command economies (i), (ii) command-and-control (i), (ii) community-generated content, and socialism (i) companies see big firms; firm boundaries; firms; multinational (global) companies competition and bureaucracy (i) and containerization (of global trade) (i) vs. contesting markets (i) and financial regulation (i) and firm boundaries (i), (ii) and geography of production (i) and globalization (i) life-or-death competition (i), (ii), (iii), (iv) and market concentration (i) and mergers and acquisitions (i) move of from countries to firms (i), (ii) and multinationals (i) oligopolistic (or monopolistic) competition (i) and planning machines (i) see also market contestability competitive forces concept (i) complexity “complex by design” capitalism (i) market complexity (i) see also regulatory complexity/uncertainty compliance officers (i) complicatedness index (Boston Consulting Group) (i) compound growth (i) Compustat, corporate cash holdings (i) computer technology/computerization and corporate managerialism (i) and knowledge obsolescence (i) and labor (i) and leisure (i) and market socialism (i) and production (i) and quantum dots/cadmium (i) see also digitalization; ICT (information and communications technology); information technology (IT); software technology Conference Board (economics consultancy) (i), (ii) consolidation (i), (ii) see also mergers and acquisitions Consumer Protection Act (US) (i) containerization (of global trade) (i) contestability see market contestability contracts (i) copying, and strategy (i), (ii) corporate borrowing and low investment growth (i) see also corporate net lending corporate control, and specialization (i) corporate failure see failure corporate globalism (i), (ii), (iii) corporate managerialism and bureaucracy (i), (ii), (iii), (iv), (v) and capitalism, decline of (i), (ii), (iii) corporate destruction and innovation: IBM (i); Microsoft (i), (ii); Nokia (i), (ii), (iii), (iv), (v) formula of failure (i) and globalist worldview (i) and globalization (i), (ii), (iii), (iv) managerial ideology on the rise (i), (ii) planning: planning machines (i), (ii), (iii); risk and uncertainty (i); strategy (i) regulation (i), (ii) regulation and compliance officers (i) Swedish managerialist culture (i), (ii) value vs. numbers (i) see also bureaucracy corporate medical research, and financial regulation (i) corporate net lending (i), (ii) see also corporate borrowing corporate politics (i), (ii), (iii), (iv) see also political world corporate savings (cash hoarding) (i), (ii), (iii), (iv), (v) corporate size and entrepreneurship (i) and globalization (i) and regulation (i) corporate social responsibility (CSR) (i) corporate socialism (i), (ii) corporate socialization (i) corporate valuations (i) costs production costs (i), (ii), (iii) sunk costs (i), (ii), (iii), (iv) transaction costs (i), (ii), (iii), (iv), (v), (vi) transmission costs (i), (ii), (iii) Cowen, Tyler (i) creative destruction fear of and political institutions (i) and globalization (i) and innovation (i), (ii), (iii), (iv), (v) and New Machine Age (i) and Nokia (i) and present-day capitalism (i) see also withering credit rating agencies (i), (ii), (iii) Credit Suisse, on stock markets (i) crony capitalism (i) cronyism (i), (ii), (iii), (iv) culture of experimentation (i), (ii) see also entrepreneurs; entrepreneurship culture of individualism (i) see also dissent; eccentricity; freedom customer loyalty (i) Cybersyn project (i) cyclical effects, and productivity (i) da Vinci, Leonardo see Leonardo da Vinci Darwinianism (i), (ii) Das, Gurcharan (i) data see recorded data (national accounts) data economy, and productivity (i) DAX 30 index (Germany) (i) de Blasio, Bill (i) debt and dividends/share buybacks vs. investment (i), (ii) and economic decline (i) vs. equity funding (i), (ii), (iii), (iv), (v), (vi) and retirement savings (i), (ii) decision-making probabilistic decision-making (i), (ii) and strategy (i) decoupling (productivity/incomes) thesis (i), (ii) deregulation case of air cargo services (FedEx) (i) and diffusion of innovations (i), (ii) OECD product market regulation (PMR) indicators (i), (ii) and reallocation of business (i) and regulatory accumulation (i) wave in 1980s–1990s (i), (ii) see also regulation; regulatory complexity/uncertainty Descartes, René (i) design (i) development vs. research (i), (ii) see also incremental development; R&D diffusion and deregulation (i), (ii) and globalization (i), (ii) and occupational licenses (i) and productivity (i) and R&D (i) “diffusion machine” (i), (ii), (iii) digital age and capitalism (i) and politics (i) digitalization and innovation (i) and leisure (i) and managerialism (i) and productivity growth (i) and regulation (i) and second unbundling of production (i) see also computer technology/computerization; ICT (information and communications technology); information technology (IT); “servicification” (or “servitization”) direct-to-consumer sales (i) dirigisme (France) (i) discriminate dynamism theory (i) dispersed ownership (i) dissent (i), (ii), (iii), (iv) see also culture of individualism; eccentricity diversification and investment (i), (ii) organizational (i), (ii) dividends (i), (ii), (iii), (iv), (v) DJs, and jobs and technology debate (i) dock labor, and containerization (of global trade) (i) Dodd-–Frank Act (US) (i), (ii), (iii), (iv) Dolly the Sheep (i) Dr. Strangelove character (i) driverless vehicles (i), (ii), (iii), (iv) drones, and regulation (i) Drucker, Peter (i), (ii) drugs see pharmaceutical sector dual class stock structures (i) Dutch disease (i) Dutch tulip mania (i) dynamism see discriminate dynamism theory; economic dynamism East Asia, trade and value chains (i) Ebenezer Scrooge character (i) eccentricity (i), (ii), (iii), (iv), (v) see also culture of individualism; dissent economic dynamism and capitalism (i), (ii), (iii) and innovation (i), (ii), (iii) and market contestability (i) economic growth compound growth (i) and productivity (i), (ii) and regulatory complexity/uncertainty (i) see also GDP (gross domestic product) Economic Policy Institute (Washington, DC) (i) The Economist on global corporations (i) on new technology and social dislocation (i) on pensioners vs. working-age households incomes (i) “Planet of the Phones” (i) on share buybacks (i) economy “bazaar economy” (Hans-Werner Sinn) (i) data economy (i) knowledge-based economy (i) “new economy” (i) and technology (i), (ii), (iii) see also economic dynamism; economic growth; financial economy; GDP (gross domestic product) EFAMA, on asset management industry (i) Einstein, Albert (i), (ii) electronic devices (i) electronic wallets (i) embedded liberalism (i) emerging markets (i), (ii), (iii), (iv), (v) employment protection legislation (i) see also labor; unemployment Energy Policy and Conservation Act (EPCA, US) (i) energy sector and antitrust laws (i) and innovation (i) and regulation (i), (ii) renewable/green energy: and regulation in Europe (i), (ii); and sunk costs (i) Engels, Friedrich, Communist Manifesto (Marx and Engels) (i), (ii) Enlightenment (i), (ii) Enron (i) entrepreneurs vs. bureaucrats (i), (ii) vs. managerialists (i) and passion vs. market complexity (i), (ii) Schumpeter on (i) tech entrepreneurs (i) see also entrepreneurship entrepreneurship aging trend (i), (ii) and capitalism (i), (ii) and dual class stock structures (i) and equity financing (i) and globalization (i), (ii) and innovation (i), (ii) and organizational diversification (i) vs. planning machines (i), (ii) and precautionary regulations (i) and size of firms (i) and strategy (i) and uncertainty (i) see also culture of experimentation; culture of individualism; entrepreneurs; start-ups equity vs. debt funding (i), (ii), (iii), (iv), (v), (vi), (vii) and institutional investors (i) and retirement savings (i), (ii) Ericsson (i), (ii) Ericsson, John (i) Europe asset management industry (i) big firms’ relative importance (i) capital expenditure (capex) (i), (ii)n39 corporate renewal levels (i) corporate savings (i) debt vs. equity financing (i) energy sector and antitrust laws (i) German-Central European supply chain (i) higher- vs. lower-income countries (i) labor, and tax (i) labor markets: low rates of flexibility (i); and lower productivity (i) mergers and acquisitions (i) pensions (i) productivity (i), (ii), (iii); total factor productivity (TFP) growth (i) R&D spending (i), (ii) regulation: compliance officers and Basel III (i); deregulation trend (i); index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); occupational/professional standards (i); technological platforms (i) services and globalization (i) trade: and big business (i); index of regulatory trade barriers (i), (ii); and value chains (i) see also eurozone; European Union European Food Safety Authority (EFSA) (i) European Union biofuels regulations (i) cadmium exemption issue (i), (ii) capitalist ownership and dual class stocks (i) chemicals regulations (i), (ii) exports to China (i) financial regulations (i), (ii); banks and Basel III rules (i), (ii) genetically modified organisms (GMOs) regulations (i), (ii), (iii) GM potato regulations (i) Leave campaign and older generation (UK) (i) nanotechnology regulations (i), (ii) precautionary principle (i) R&D scoreboards (i), (ii) Single Market (i) see also eurozone; Europe eurozone Germany and “sick man of the euro” label (i) pensions (i) see also Europe; European Union experimentation, culture of (i), (ii) see also entrepreneurs; entrepreneurship external capital markets (i), (ii), (iii), (iv), (v) Fabian Society (i) Facebook (i), (ii), (iii), (iv) failure failing companies and planning (i) formula of failure (i) and innovation process (i) Fairchild Semiconductor (i) FDI (foreign direct investment) (i), (ii), (iii) Federal Deposit Insurance Corporation (i) Federal Express (FedEx) (i), (ii) Feldstein, Martin (i) Fernald, John (i) fiduciary duties and laws (i) financial capitalism (i), (ii), (iii), (iv) see also financial economy financial crisis (2007) and aspirations (i) and financial regulations (i), (ii), (iii) and globalist worldview (i) and rich people vs. capitalists issue (i) and sovereign wealth funds (i) and stock markets (i) and Wall Street (i), (ii) see also Great Recession financial economy and gray capitalism (i), (ii), (iii) vs. real economy (i), (ii), (iii) financial institutions and financial regulations (i), (ii) and globalization (i) SIFIs (systemically important financial institutions) (i) see also banks financial regulations (i), (ii), (iii), (iv) financial sector growth of and productivity (i) financial services, and globalization (i) financial skills, vs. business-building skills (i) Financial Times on compliance officers (i) on French ban on Mercedes-Benz cars (i) Fink, Lawrence (i) Finland dependence on larger enterprises (i) Nokia story (i) firm boundaries and competition (i), (ii) and corporate managerialism (i), (ii), (iii), (iv), (v), (vi), (vii) and globalization (i) and innovation (i), (ii), (iii) and market concentration (i) and multinationals (i), (ii) and pharmaceutical sector (i) and R&D (i), (ii) and specialization (i), (ii), (iii), (iv), (v) see also firms firms entry-and-exit rates (i), (ii), (iii), (iv) high-growth firms (i) home-market firms vs. multinationals (i) interfirm vs. intrafirm trade (i) joint-stock companies (i), (ii) as logistics hubs (i), (ii) role of in the economy (i) start-ups (i), (ii), (iii), (iv), (v) unicorns (i) see also big firms; corporate size; firm boundaries; multinational (global) companies first-mover advantage (i) Food and Drug Administration (FDA, US) (i), (ii), (iii) food retailing, and globalization (i) Ford, Henry (i), (ii) Ford, Martin, The Rise of the Robots (i), (ii) foreign direct investment (FDI) (i), (ii), (iii) Fortune 500 companies (i) Foster, George (i) Foxconn (i) France ban on Mercedes-Benz cars (i) CAC 40 index (i) corporate renewal levels (i) dependence on larger enterprises (i) dirigisme (i) exports to China (i) and globalization (i) productivity, decline in and labor market rules (i) profit margins (i) public debt (i) R&D spending (i) regulation: index of regulatory freedom (i), (ii); index of regulatory trade barriers (i), (ii); medical devices (i); taxi services (i) trade: and big business (i); index of regulatory trade barriers (i), (ii) Fraser Institute, index of regulatory freedom (i), (ii) free-market capitalism (i) free speech, and academia (i) freedom (i), (ii), (iii) see also culture of individualism; dissent; eccentricity French Mississippi finance bubble (i) Frey, Carl Benedikt (i) Friedman, Milton (i) Fukuyama, Francis, The End of History and the Last Man (i) future, the (and how to prevent it) capitalist decline and pessimism (i) from corporate globalism to global corporatism (i) rise of regulatory uncertainty (i) “silver tsunami” for cash and pensions (i) state of Western economies and future imperfect (i) suggested steps to prevent the future: agency and economic history (i); boosting market contestability (i); nurturing culture of dissent and eccentricity (i); severing gray capital–corporate ownership link (i) Future Perfect, A (Micklethwait and Wooldridge) (i) G7 (Group of Seven) countries, labour productivity (i), (ii) Galbraith, John Kenneth, The New Industrial State (i), (ii), (iii), (iv), (v), (vi) Gallup, job satisfaction survey (i) Galston, William (i) Gates, Bill (i) GATT (General Agreement on Tariffs and Trade) (i) see also World Trade Organization (WTO) GDP (gross domestic product) and business investment (i), (ii), (iii) China’s (2014) (i), (ii) declining trend (i), (ii) and financial sector growth (i) GDP statistics issues (i) and global trade (i) and globalization (i) ICT hardware investment as share of (i), (ii) labor’s share of (i) and pensions (i) and R&D spending (i), (ii) and robots (i) Gekko character (Wall Street movie) (i) General Electric (GE) (i), (ii) generations boomer (or baby boomer) generation (i), (ii), (iii), (iv) The Clash of Generations (Kotlikoff and Burns) (i) EU Leave campaign and older generation (UK) (i) and income inequality (i) technology-frustrated generation (i) genetically modified (GM) potato, and EU regulation (i) genetically modified organisms (GMOs), and EU regulation (i), (ii), (iii) geographical zoning laws (i) Germany aging population (i) business investment declining trend (i) car industry: French ban on Mercedes-Benz cars (i); and value chains (i) corporate profit margins (1990–2014) (i), (ii), (iii), (iv) corporate renewal levels (i) DAX 30 index (i) dependence on larger enterprises (i) exports to China (i) German-Central European supply chain (i), (ii) and globalization (i), (ii), (iii), (iv) income inequality and generations (i) pensions (i) productivity: decline in and labor market rules (i); and wages (i) regulation: bureaucracy brake (i); deregulated vs. regulated sectors 148–9 index of regulatory freedom 151, (i); index of regulatory trade barriers 152, (i); medical devices (i); taxi services (i) “sick man of the euro” (i) trade: index of regulatory trade barriers (i), (ii); and value chains (i) Gerschenkron, Alexander (i), (ii) Gerstner, Louis (i) Ghosh, Shikhar (i) Gilder, George (i) global firms see multinational (global) companies global trade and containerization (i) expansion phases (i) and globalization, 2nd phase of (i) growth statistics (i) and market contestability (i) and multinationals (i), (ii) regionalization of Asia’s trade growth (i) regulatory trade barriers (i), (ii), (iii) see also mercantilism; protectionism; trade “Globalise or Fossilise!”

Secrets of Sand Hill Road: Venture Capital and How to Get It
by Scott Kupor
Published 3 Jun 2019

In the former case, a VC might want to do this as part of the IPO of the company. To take a company public, you will want to clean up the capital structure of the company by having everyone convert into common shares. It’s not impossible to have multiple types of shares as a public company—in fact, more recently we have seen many technology companies implement “dual-class stock” as part of their IPO, which often splits common stock into a high-voting class and a low-voting class. For example, Google and Facebook each have dual-class voting structures, and Snap actually has a tri-class structure. This notwithstanding, preferred shares generally need to go away at the time of the IPO.

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As we briefly discussed above, when some startup companies go public, they have different classes of shares with different voting rights. While it is not unheard of when the companies are still private, it’s pretty unusual. In our term sheet, the voting follows the normal convention of one person, one vote. As dual-class stock has started to proliferate among some public technology companies (e.g., Facebook, Google, Snap), some startups have been thinking about whether to adopt these structures as a private company. There are two flavors of this that we’ve been seeing of late. First, some founders would like to have a high-vote stock that applies to their shares only.

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Bloodhound Technologies, 236–239 Casado, Martin, 45, 131–132 cash as deflationary hedge, 59, 63 role of, 17–18 and Yale University endowment, 63 “cashless exercise option,” 184–185 C Corporations, 92–94 chief executive officers (CEOs) and board of directors, 171, 202–204, 207–209 compensation of, 205–206 and informal coaching by VCs, 207 and over-involvement of VCs, 203 of publicly traded companies, 268 role of, 199 strategic direction of, 203–204 Chinese wall strategy for managing conflicts, 214, 215 choosing a venture capital firm and ability to raise new funds, 67–68 and life cycles of funds, 66–67, 68 and state of fund, 84 Cisco, 11 clawbacks, 80–81 closing the company, 243–246 cloud computing, 20 cofounders, 94, 96–101 Columbus, Christopher, 53 commodities investments, 58 “common-controlled” boards, 172 common stock/shareholders about, 93, 141 and acquisitions, 252, 254–255 and Bloodhound case, 236–239 conversion of preferred shareholders to, 160–165, 177, 235, 280 and dilution of equity, 154, 167 and dividends, 155 and drag-along provisions in term sheets, 182 and fiduciary duty of board members, 211–215, 216, 231 and liquidation preference, 157, 158 representation of, on board, 171, 172 separate vote for, 230 and stock restrictions in term sheets, 181 “company-first company” concept, 44–45 comparable company analysis valuation method, 77–78, 79, 149–150 comparing finance deals, 189–198 and capitalization tables, 190–196 and governance terms, 196–198 compensation, 204, 244 competing companies, 212–215 competition for venture capital, 271–272 compliance, maintaining, 206–207 confidentiality addressed in term sheets, 285 duty of, 212–215 conflicts of interest anticipation/understanding of, 228, 230–231, 239 and Bloodhound case, 237 and duty of confidentiality, 213–214 managing, 214, 215, 230–231 resulting from a pivot, 213–214 and Trados case, 222–226, 228 “control” investments, 16–17 conversion/auto-conversion to common shares, 160–165, 177, 235, 280 convertible debt/notes, 142–147, 148, 233 corporate pension funds, 55 corporate structure for startups, 92–94 corporate veil, protecting against piercing, 206–207 co-sale agreements, 181 creditors, 245, 246 Credit Suisse First Boston, 12, 13 crowdfunding, 36, 273, 274 customer acquisition, 135–136 D&O (directors & officers) insurance, 183, 284 debt equity vs., 26–29 and winding down the company, 246 Decimalization and Regulation NMS (National Market System), 107 deflationary hedges, 59, 63 Delaware, 174 difficult financings, 232–246 and Bloodhound case, 236–239 and bridge financing, 233 and fiduciary duty questions, 232, 236, 237 reducing/eliminating liquidation preferences, 234–236 and reverse splits of stock holdings, 235–236 success following, 239–242 and winding down the company, 243–246 See also down-round financing; recapitalizations dilution of equity about, 120 and antidilution provisions in term sheet, 165–167, 193–196, 280–281 balancing incenting against, 146–147 and down rounds, 165–166, 167, 237 and employee option pools, 240 and pro rata investments, 178–180 and reverse splits of stock holdings, 235–236 Dimon, Jamie, 133 discounted cash flow analyses, 150–153 discount rates, 150–151 distribution of returns for venture capital, 30–32, 31, 35, 38, 40 diversification, 36 dividends, 154–155, 279 Dixon, Chris, 48 “DLOM” (discount for lack of marketability), 77–78 Doerr, John, 43, 112 domestic equities, 61–62 Dorsey, Jack, 133 dot.com boom/bust and buyout investors, 16–17 general outlook during, 9–11 initial public offerings during, 9–10, 15 and LoudCloud, 12–18 and Nasdaq index, 10–11, 15 pace of VC investment during, 10 and public markets, 10–11 and Yale University endowment, 64–65 double-trigger acceleration, 186–187, 250–251 down-round financing and Bloodhound case, 237 defined, 165 and dilution of equity, 165–166, 167, 237 and fiduciary duty questions, 232, 236, 237 and management incentive plans, 241–242 purpose of, 234 success following, 234, 239–242 and winding down the company, 234 drag-along provisions in term sheets, 182–183, 252, 284 dual-class stock, 160, 168–169 dual fiduciaries, 201–202, 212 duty of candor, 215 duty of care, 211–212, 215, 217 duty of confidentiality, 212–215 duty of loyalty, 212, 215, 218 early-stage financing/investors (angels or seed investors) and convertible notes, 28, 144 emergence of, 271 of Horowitz and Andreessen, 19 and Silicon Valley community (2007), 19 as source of referrals for VCs, 125 and valuation of startups, 153 economic impact of venture-backed companies, 3–4, 41 Edison, Thomas, 53–54 Edison General Electric, 53–54 egomania in founders, 47–48 Electronic Data Systems (EDS), 18 emerging growth companies (EGCs), 261–263 employee option pools, 103–106 board’s role in managing, 205 and capitalization tables, 190–191 following difficult financings, 240–241 size of, 154, 177, 205 employees cash-equity tradeoff of, 184, 185 and common stock, 93 compensation of, 244 and employment offers in acquisitions, 251, 256 and non-disclosure agreements, 187, 285 rights to technologies created by, 187, 285 and vacation policies, 244–245 and valuation, 121–122 and vesting, 183 and WARN statutes, 243–244 and winding down the company, 243–245 endorsement of a company, venture capital as, 43–44 endowments, 54–55 entire fairness rule, 218–220, 222, 226–229, 237 entrepreneurs and declining capital requirements for startups, 20, 270–271 equity held by, 145 goals/objectives of, 5 and information asymmetry, 5, 140, 275 power balance with VCs, 20–21 role of, in venture capital, 29 See also founders E.piphany, 12 equity financing, 26–29 equity partners agreement, 88–89 escrow accounts, 252–253 evaluation of early-stage companies, 42–52 and company vs. product-first companies, 44–45 and good ideas that look like bad ideas, 48 and idea maze of founders, 49, 135 and limited/imperfect data, 34, 42 and market size, 50–52 people/team considerations in, 43–48 and products, 48–50 evolution of venture capital industry, 270–273 exclusivity periods, 253 exiting options of venture-backed companies, 2.

Trillion Dollar Coach: The Leadership Playbook of Silicon Valley's Bill Campbell
by Eric Schmidt , Jonathan Rosenberg and Alan Eagle
Published 15 Apr 2019

.* To Larry and Sergey, the structure was a critical element of their vision for the company. They admired Warren Buffett and had become knowledgeable about the dual class stock structure that his company Berkshire Hathaway employed. They had always considered Google as much an institution as a business. They fervently believed in thinking long term, making big bets and big investments in those bets, without having to consider the quarterly ups and downs of public markets. They were concerned that Google would lose this “think big” propensity once it was a public company, and they saw the dual class stock structure as a way to guard against that happening. Their interests would always be aligned with that of shareholders, they reasoned, because long-term thinking and investing was the best way to maximize value for everyone.

Boom: Bubbles and the End of Stagnation
by Byrne Hobart and Tobias Huber
Published 29 Oct 2024

After long periods of depressed research investment and aggressive financial engineering, many cheap, inefficient companies have either been acquired and turned around or driven into bankruptcy. Furthermore, over the past two decades more companies have structured themselves so executives won’t be beholden to outside shareholders. Many big tech companies including Meta, Google parent Alphabet, Snap, Shopify, Lyft, Pinterest, and Zoom use dual-class stock, which grants founders disproportionate voting power. This makes it hard for investors to fire a bad CEO, but it also makes it difficult for them to lay off a good one. For instance, in the aftermath of Facebook’s IPO many investors were outraged by the company’s focus on mobile, an area that, at the time, appeared to risk cannibalizing its then-lucrative desktop ads business.

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And while gas was competitive with other fuels, it didn’t have the global ubiquity that made oil such a salient commodity. Today, the growth of the liquid natural gas industry is gradually changing this dynamic. 271 Mitchell’s word carried weight because, in an unusual arrangement for an energy company, Mitchell Energy had dual-class stock. George Mitchell couldn’t be voted out, even if most shareholders didn’t like his management style. This dual-class share structure allowed Mitchell to pursue another idea that many investors doubted: the Woodlands, a residential community project in the Houston suburbs that launched in 1974 (hence the company’s name, Mitchell Energy & Development).

Super Pumped: The Battle for Uber
by Mike Isaac
Published 2 Sep 2019

The motto “Don’t be evil”‡‡ became synonymous with Google’s founders and their approach, the message being “even though we’re growing into a mature company, we won’t be doing terrible things for money.” In 2004, when Google undertook its IPO, it used a controversial financial instrument called a “dual-class stock structure.” Google sold “Class A” shares to the public, while its founders held onto “Class B” shares. The two classes held the same monetary value, but Class B shares came with special privileges; every Class B share represented ten “votes,” or ten individual chances to yea or nay company leadership decisions.

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And when those investors felt revenue growth wasn’t strong enough, they’d try to change the company by imposing their collective will upon the two co-founders. As one investor told it, Brin and Page agreed to go public only after meeting Warren Buffett, the legendary American business mogul, who introduced the two young founders to the dual-class stock structure. “We are creating a corporate structure that is designed for stability over long time horizons,” Page wrote in a letter cheekily titled “An Owner’s Manual For Google Investors.” “By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach. . . .

Bill Marriott: Success Is Never Final--His Life and the Decisions That Built a Hotel Empire
by Dale van Atta
Published 14 Aug 2019

In September 1997, the Marriott board approved the sale—a four-year process of joint ownership with an option for Sodexho to buy out Marriott in 2001, which it did, for about $3 billion. Less gratifying, however, was a related shareholder vote, which became the only one Bill lost in his storied career. During the merger-mania decade of the 1980s, many companies adopted a dual-class stock position, which involved giving existing stockholders more votes with “super voting stock” so future corporate raiders buying one-vote stock shares could not prevail as easily in a hostile takeover attempt. Long-term investors in a company, such as owners and employees, appreciated the extra power it gave them.

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According to news reports, Hanley and his union hammered the Marriott family at every opportunity, implying that the proposal was only meant to line the family’s pockets and increase their voting power. In March, the shareholders approved the merger with Sodexho and eventual buyout of the food services division. Then, at the May 20, 1998, annual shareholder meeting, they were asked to approve the dual-class stock proposal. Bill received an overwhelming majority of the shareholder votes cast in person or by proxy, but unfortunately that amounted to only 47 percent of the outstanding shares—which fell just short of the 50-percent-plus-one-vote majority he needed for stock plan approval. There was little doubt that the combination of the large number of shareholders who didn’t vote and the union’s scare campaign getting out a negative vote had delivered the public defeat.

Concentrated Investing
by Allen C. Benello
Published 7 Dec 2016

Chieftain had urged the company to eliminate the dual-class voting structure, arguing that the Roberts family’s voting position was “inconsistent with 21st-century corporate governance.”10 [T]he maximization of shareholder value has been an after-thought for this management team. Protected by super-voting stock, management has been free to ignore shareholders entirely. The Roberts family seemed unlikely to surrender control of the company by scrapping the dual-class stock. Chieftain’s only hope was that public embarrassment and Comcast’s poor stock performance might lead the family to start caring about its public shareholders. One anonymous source suggested in the New York Post that Chieftain’s letter had more to do with its fund’s performance than with Comcast’s, saying that its huge holding in Comcast, “ . . . might be considered too heavily weighted towards one company.”11 Glenn Greenberg: The Iconoclast 179 Chieftain’s holding in Comcast was the largest single position Greenberg and company had ever put into the portfolio.

Reimagining Capitalism in a World on Fire
by Rebecca Henderson
Published 27 Apr 2020

If they are deeply embedded in a network of institutions that effectively holds them accountable—as was the case in the United States in the fifties and sixties, and has often been the case in countries such as Germany and the Netherlands, stakeholder-orientated governance systems can be very effective. But if these institutions change in fundamental ways, managers who have learned not to fear their investors may become entrenched opponents of change. This is not just a Japanese issue. In the last fifteen years, many of the most successful Silicon Valley firms have gone public with dual class stock that has left founders in sole control of their firms. Facebook, for example, issued two classes of shares when it went public. The Class A shares went to everyday investors and came with one vote per share. But the founders—mostly Mark Zuckerberg—got Class B shares. Every Class B share came with ten votes.

Googled: The End of the World as We Know It
by Ken Auletta
Published 1 Jan 2009

Google would set a floor price, and anyone who made an online bid that matched or exceeded it could acquire a minimum of five shares. Instead of paying the usual 7 percent fee to Wall Street underwriters who were necessary to sell stock, they would cut this fee to about 3 percent. And to protect what they saw as Google’s “core values” and maintain a long-term focus, they would implement a dual class stock ownership. The class A shares sold to the public would receive one vote; the class B shares, retained by the founders and by Schmidt and senior managers, would receive ten votes per share, and would comprise 61.4 percent of the voting power. When the founders proposed this stock structure, Doerr and Moritz objected, and strenuously.

Power Play: Tesla, Elon Musk, and the Bet of the Century
by Tim Higgins
Published 2 Aug 2021

It was a position that would prove notoriously, almost comically difficult for Musk to keep filled; he didn’t seem to have much interest in the advice of his lawyers. One thing Tesla elected not to do when preparing for public ownership, which would have ramifications years later, was introduce a dual-class stock system. This was what allowed Larry Page and Sergey Brin at Google (or Mark Zuckerberg at Facebook two years later) to keep control of their company, even as they held a small fraction of its total stock. It’s unclear why Tesla’s IPO paperwork, which it filed in January 2010, contained no such provision to ensure Musk’s continued oversight of the company.

Amazon Unbound: Jeff Bezos and the Invention of a Global Empire
by Brad Stone
Published 10 May 2021

A few weeks before Jeff and MacKenzie made their announcement, Amazon’s legal and finance departments began canvassing the company’s largest institutional shareholders asking whether they would support the creation of a second class of Amazon stock that carried a lower share price and reduced voting rights. Such dual-class stock structures, employed at Facebook and Google’s parent company, Alphabet, can end up concentrating voting power with their founders, giving them ultimate sway over matters of corporate governance even when they own only a small percentage of the stock. Amazon had gone public a decade before most of its Silicon Valley brethren, before such A- and B-class stock formulations were in vogue.

The Meritocracy Trap: How America's Foundational Myth Feeds Inequality, Dismantles the Middle Class, and Devours the Elite
by Daniel Markovits
Published 14 Sep 2019

Indeed, between 1990 and 2015, the non-equity component of income among CEOs of the S&P 1500 barely increased (from roughly $1.2 million to roughly $1.5 million, on average), even as the equity component more than tripled (from $800,000 to over $2.5 million, on average). See Cremers, Masconale, and Sepe, “CEO Pay Redux,” 240. The authors exclude from their data set on CEO pay managers of firms that have dual-class stock and firms in regulated industries. These comprise a little less than 10 percent of all firms in the S&P 1500. (the threat of being ousted): By the turn of the twenty-first century, a downgrade in stock analysts’ investment recommendations—from “buy” to “hold” or from “hold” to “sell”—increased by half the chance that the downgraded firm’s CEO would be fired within six months.