Why Investors Are Fretting Over Dual-Class Shares

The governance structure used by companies such as Facebook, Alibaba and Volkswagen is going global, and not everyone is happy. Dual-class shares, as they’re known, give company founders super-sized power over their businesses even if they only hold a small slice of the stock. While the formula is popular, especially among technology firms -- it blends public shares with the private-equity model -- many investors bristle at its undemocratic nature. Proposals by exchanges in London, Hong Kong and Singapore to allow dual classes mean they’re likely to become more common, despite complaints.

Opponents say they subvert the traditional one-share, one-vote system that’s designed to give equal treatment to all shareholders. Dual shares challenge the bedrock notion that those who provide the capital should get a say in how the company is run, by conceding that some investors (usually the founders, their families and the venture capitalists who provide seed money) matter more than others. The rest have little clout -- none at all, in the case of Snap Inc. -- though they do usually get the same amount of dividends. Facebook’s dual-class model gives company founder Mark Zuckerberg less than one percent of the social-media giant’s publicly traded stock and 60 percent of its voting rights. That’s how he could buy messaging app WhatsApp for $22 billion with little shareholder or board input.