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Well it's a bit like trying to "have your cake and eat it": if you want to run a family company, fine, but you can't ask the markets for capital and yet keep t

Well it's a bit like trying to "have your cake and eat it": if you want to run a family company, fine, but you can't ask the markets for capital and yet keep the control! Those dual class of shares have always seem odd to me; I mean, I kind of understand the point for your average young startup - where the voting power somehow represents the risk everyone took, and you don't want to destabilize the company. For a mature company, the justification is less clear.

prebrov 7y ago
Why not? Markets are interested in capital gains and profit sharing, not necessarily steering the wheel directly. How is it wrong for a founder to take a smaller cut of the profit in exchange for more power? Founders (individuals) want a voice in their companies, and how much money does one need anyway? Investors (usually institutions) want to make money, and they need lots of it. Seems like a fair trade.
- michaelt 7y ago
  If a dual-class share structure allows the CEO to divert 100% of dividends into his personal bonus, and prevents investors from having him removed even if he does, why wouldn't he? Does an investment with those properties sound like a good investment to you?
  - adventured 7y ago
    > If a dual-class share structure allows the CEO to divert 100% of dividends into his personal bonus > Does an investment with those properties sound like a good investment to you? It's plainly obvious you don't hold an investment in a public company that does that. Your setup has a self-correcting action: the investors sell if they can't derive the expected benefit from owning the stock because the CEO is sending all the profit into their own bank account. Why doesn't Zuckerberg do it for example? Because the stock would implode by 90%+ overnight and the best employees would immediately flee as they see their stock become worthless and future stock compensation goes to zero. Then the rest of the corporation would collapse in time without the employees required to keep it operating at a high level. Even monopolies can easily lose their position. Just downgrading your average employee by one grade, eg from a B to a C, will collapse elite tech companies over time. History is littered with examples (from HP to IBM) of what happens to companies when they can no longer attract the best.
    - Ericson2314 7y ago
      The concrete point in the above is that that employees vested with stock would rebel. But of the employees weren't so vested yes Zuvk could go do that. I would rather he did to teach people this multi class stock business is silly.
ryanmarsh 7y ago
If I’m not mistaken there are several large public US companies with a significant (or majority) control held by family members of the founders. Isn’t Walmart one? I think Ford was mostly controlled by family for a long time too. I’m not saying I agree with nepotism in public companies, just saying there’s precedent.
ISL 7y ago
Dual class structures are easier for investors to swallow in good times. When things go bad, those investors will discover the downsides. I own shares in two dual-class companies: Berkshire is one, and there, the dual class nature has the effect of giving more-serious/rich investors more votes. The coming century will test whether that is a good idea. Starrett is the other; there the dual class structure is designed to protect a once-family business that is still run by the family. To me, at present, it is a feature, not a bug. Without the dual-class, Starrett probably would have been bought out in a hostile takeover/leveraged buyout. Instead, the company endures, with a long-term vision. The coming decades will test my optimistic thesis.
- microtherion 7y ago
  > Without the dual-class, Starrett probably would have been bought out in a hostile takeover/leveraged buyout Recently, in Switzerland, there was a company (Sika AG), where the founding family held 54% of the vote with 16% of the shares. When they wanted to cash out, they simply sold their shares to an outside investor at a sizable premium, and the remaining shares could potentially have ended up worthless (ultimately, after a multi year lawsuit, a compromise prevailed).
  - ISL 7y ago
    Interesting -- thank you.
the_resistence 7y ago
They "work" because the real owners "Dallas Police Retirement Fund" et. al. are too far away from the situation to understand the screwjob.

prebrov 7y ago

Why not? Markets are interested in capital gains and profit sharing, not necessarily steering the wheel directly. How is it wrong for a founder to take a smaller cut of the profit in exchange for more power? Founders (individuals) want a voice in their companies, and how much money does one need anyway? Investors (usually institutions) want to make money, and they need lots of it. Seems like a fair trade.

michaelt 7y ago
If a dual-class share structure allows the CEO to divert 100% of dividends into his personal bonus, and prevents investors from having him removed even if he does, why wouldn't he? Does an investment with those properties sound like a good investment to you?
- adventured 7y ago
  > If a dual-class share structure allows the CEO to divert 100% of dividends into his personal bonus > Does an investment with those properties sound like a good investment to you? It's plainly obvious you don't hold an investment in a public company that does that. Your setup has a self-correcting action: the investors sell if they can't derive the expected benefit from owning the stock because the CEO is sending all the profit into their own bank account. Why doesn't Zuckerberg do it for example? Because the stock would implode by 90%+ overnight and the best employees would immediately flee as they see their stock become worthless and future stock compensation goes to zero. Then the rest of the corporation would collapse in time without the employees required to keep it operating at a high level. Even monopolies can easily lose their position. Just downgrading your average employee by one grade, eg from a B to a C, will collapse elite tech companies over time. History is littered with examples (from HP to IBM) of what happens to companies when they can no longer attract the best.
  - Ericson2314 7y ago
    The concrete point in the above is that that employees vested with stock would rebel. But of the employees weren't so vested yes Zuvk could go do that. I would rather he did to teach people this multi class stock business is silly.

ryanmarsh 7y ago

If I’m not mistaken there are several large public US companies with a significant (or majority) control held by family members of the founders. Isn’t Walmart one? I think Ford was mostly controlled by family for a long time too. I’m not saying I agree with nepotism in public companies, just saying there’s precedent.

ISL 7y ago

Dual class structures are easier for investors to swallow in good times. When things go bad, those investors will discover the downsides. I own shares in two dual-class companies: Berkshire is one, and there, the dual class nature has the effect of giving more-serious/rich investors more votes. The coming century will test whether that is a good idea. Starrett is the other; there the dual class structure is designed to protect a once-family business that is still run by the family. To me, at present, it is a feature, not a bug. Without the dual-class, Starrett probably would have been bought out in a hostile takeover/leveraged buyout. Instead, the company endures, with a long-term vision. The coming decades will test my optimistic thesis.

microtherion 7y ago
> Without the dual-class, Starrett probably would have been bought out in a hostile takeover/leveraged buyout Recently, in Switzerland, there was a company (Sika AG), where the founding family held 54% of the vote with 16% of the shares. When they wanted to cash out, they simply sold their shares to an outside investor at a sizable premium, and the remaining shares could potentially have ended up worthless (ultimately, after a multi year lawsuit, a compromise prevailed).
- ISL 7y ago
  Interesting -- thank you.

the_resistence 7y ago

They "work" because the real owners "Dallas Police Retirement Fund" et. al. are too far away from the situation to understand the screwjob.