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Why Dual-Class Shares Catch On, Over Investor Worries

Facebook headquarters in Menlo Park, California.

Facebook headquarters in Menlo Park, California.

Photographer: David Paul Morris/Bloomberg
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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. Adoption of the structure by exchanges in London, Hong Kong and Singapore means they’re likely to become more common, despite complaints.

Opponents say they subvert the one-share, one-vote principal designed to give equal treatment to all shareholders. Instead, under a system known as weighted voting rights, some investors in dual-class shares (usually the founders, their families and the venture capitalists who provide seed money) retain most or all of the clout. Photo-sharing app Snap Inc. took the notion to its extreme by handing zero voting rights to investors in its $3.4 billion initial public offering in 2017. Facebook Inc.’s dual-class model gave founder Mark Zuckerberg almost 58% of voting shares in the company as of March 2020, when he owned less than 13% of its outstanding stock. The implosion of office-sharing company WeWork as it prepared to go public was due in part to scrutiny of a plan to give supercharged voting power to founder Adam Neumann.