May 2, 2019 - Economy & Business

New tech IPOs give disproportionate voting control to CEOs

Dan Primack, author of Pro Rata

Pinterest execs during the company's IPO. Photo: Johannes Eisele.

Public market investors continue to grumble over how many big new tech IPOs are designed with dual-class structures that give disproportionate voting control to founder/CEOs.

Details: Recent examples include Lyft, Pinterest, Zoom Video and Slack. Uber is using a single-class structure, in part because its founder/CEO is now its founder/ex-CEO.

The move bans such issuers from the S&P 500 and many index funds (some just underweight them), but it continues to be viewed as a worthwhile tradeoff by founders who are terrified of being the subject of a Carl Icahn letter.

  • Founders are right to be guard against short-term investors who don't really care about the company, its customers or its employees.
  • Founders are wrong to respond through a structure that offers virtually no recourse when the founder is harming the company, its customers or its employees.

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