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Let Them Eat Burgers

Investors said they wanted good governance. Then Shake Shack came along
relates to Let Them Eat Burgers
Photographer: Eric Helgas for Bloomberg Businessweek
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Shake Shack shook up Wall Street on Jan. 30. With investors eager to buy into New York restaurateur Danny Meyer’s thoroughly modern vision of a burger joint (complete with beer and wine), the company was able to sell its shares for more than it originally planned. And the stock price still doubled on the first day of trading.

Yet beneath the contemporary design and trendsetting cuisine, there’s something very old-school about Shake Shack: its corporate governance. Despite the recent brouhaha over shareholder democracy, independent directors, and “one man, one vote,” Shake Shack is happily accepting new shareholders’ cash but keeping the levers of corporate power firmly in the hands of Meyer and his original investors. The company has two classes of stock, a complex setup giving Meyer and his founding investors 85.9 percent of the voting rights. The buyers of the stock in the initial public offering paid $105 million to get 44.2 percent of the economic stake but only 14.1 percent of the voting power. And the board is far from independent, with Meyer and other insiders controlling five of seven seats. The IPO deal even requires that some of the public company’s future tax benefits be given to Meyer and his original investors. Meyer declined to comment. Shake Shack Chief Executive Officer Randy Garutti says the dual-stock ownership structure is not unique. “A number of companies have done it recently,” he says, citing Habit Restaurants, operator of Habit Burger Grill, as an example.