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As part of an investment round for WeWork in 2014, he was granted Class B shares that gave him 10 votes per share, and now he has more than 65% of the ove
by hendzen 8y ago
As part of an investment round for WeWork in 2014, he was
granted Class B shares that gave him 10 votes per share,
and now he has more than 65% of the overall share vote,
according to WeWork corporate filings.
These multi-class ownership structures need to be reformed. The SEC is already thinking about it [0].
[0]- https://www.sec.gov/news/speech/perpetual-dual-class-stock-case-against-corporate-royalty https://www.sec.gov/news/speech/perpetual-dual-class-stock-c...
- yani 8y agoYes, this will be really good to do.
- lotsofpulp 8y agoUnnecessary, no one is being duped into investing in a business in which they have no say. If they deem it's worth the additional agency risk, then they should be able to afford it, if not, they and others will learn going forward.
- bfdm 8y agoBut it still perpetuates a class system whereby having money and influence yields (potentially) more money and influence. Main Street investors who will have no say at scale should not be excluded from participating in the wealth creation. Certainly this is not a natural or easy problem, it requires a values analysis of our goals and principles. But if we truly want the market to evaluate a company, we must ultimately allow that market to change the fate of a company. The dual class shares prevent that, which I agree should be listed differently or restricted. For example, if dual class shares were always subject to a confidence vote by the other shares once per 5 years, this is fine. Or you say that after 20 years the dual class must be dissolved. Allow the use for initial listing, but not forever. I think the author of the linked speech painted a very good picture of this.
- cenal 8y agoIt’d give even fewer incentives to take a company public.
- mooreds 8y agoHow about (active) investors? Why wouldn't they shy away from that kind of deal?
- hendzen 8y agoToo much VC money chasing too few deals. They didn't have a choice, he could have just gotten the money elsewhere.
- chuckgreenman 8y agoCan someone introduce me to these desperate venture capitalists making poorly researched deals?
- byset 8y agoThere is a competitive element when lots of VC money is chasing hot investments — the company has leverage to get investors to accept unfavorable terms. It is an aspect of our bubbly financial climate, like the boom in "covenant-lite" loans. Also, there is a Ponzi-like aspect to VC funding in general, where incentives favor ever-rising valuations rather than the cultivation of sustainable, profitable businesses.
- travisoneill1 8y agoWhy? Everybody who bought those shares knew exactly what they were buying.
- hendzen 8y agoI'm not opposed to the use of multi-class shares in private companies, but for public companies I think that they should be phased out in line with the proposal from the SEC commissioner's speech. The self-dealing in the OP is another matter entirely -- and potentially worthy of a shareholder lawsuit for breach of fiduciary duty.
- scarface74 8y agoThere are two sides to the coin, a good founder/CEO that has a controlling interest in the company can make long term strategic plans without fear of repercussions from short sighted investors.
- mfoy_ 8y agoBut you can be a good founder/CEO and have a controlling interest in the company without using multi-class shares if you simply retain the majority of shares. Problems such as the one mentioned in this article start occurring when multi-class share schemes start allowing the founder to effectively sell off most of the company while still retaining total control.
- hendzen 8y agoRead the SEC commissioner's speech that I linked, seriously. He doesn't propose banning them entirely, just phasing them out over a period of time. Clearly there is a flipside to carte blanche founder control when the CEO/Founder is underperforming yet can't be removed (e.g. Evan Spiegel). Do you think Mark Zuckerberg's children should retain majority control of Facebook after he dies?
- anticensor 8y agoSolution: Disallow inheritance of company shares.
- tinyvm 8y ago> he has more than 65% of the overall share vote So when WeWork responded with -"The board is aware of it and has approved it" they probably meant -"Neuman is aware of it and has approved it" right ?
- Ericson2314 8y agoNon-voting shares especially illustrate at least one of two things: 1. How divorced the financial markets are from the real economy. 2. How broken all our voting systems are. Choose your narrative.
- anongraddebt 8y agoBoth. 2008 didn't substantively re-tether the financial markets to the real economy. Governance mechanisms are beginning to crack.