The gods of Silicon Valley have repeatedly sought to take the companies they founded public while retaining control as if they were still private.
Recent events at Google and other technology companies show that perhaps this control may be bad not only for the companies but also for the founders, who are increasingly living in a world bereft of checks and balances.
Silicon Valley has for the most part held public shareholders in mixed regard. Preferring to keep them on the sidelines is not a new development.
Google was a leader in this movement. When it went public in 2004, it did so using a dual-class structure. Its co-founders, Sergey Brin and Larry Page, were issued shares with 10 votes apiece, while public shareholders received shares with only one vote. The idea was to ensure that the co-founders kept control of Google even if they sold some of their shares.
But boundaries get pushed, as does everything in the tech world. Facebook went further in restricting shareholder control when it went public by adopting a dual-class structure that allowed its co-founder Mark Zuckerberg to keep control even if he owned less than 10 percent of the company. In fact, if Mr. Zuckerberg dies, his heirs still have the potential to control the company.
Putting this in perspective, had Apple gone public with Facebook’s structure, Steven P. Jobs’s widow, Laurene Powell Jobs, and Apple’s co-founder Steve Wozniak (most recently a “Dancing With the Stars” contestant) would possibly still be in control.
Not to be outdone, Google proposed last year that the company issue a new class of shares with no voting rights. According to public documents filed by Google, this share class was put into place at the behest of the founders, being justified by Mr. Brin and Mr. Page as allowing them to “concentrate on the long term.”
The idea is that absent the pressures of the public market, executives can look after the long-term best interests of the company. This will allow Google to experiment with things like Google Glass, which may not be immediately profitable.
It’s an alluring argument. On the plus side, this allows for the company to look out for a wide array of interests beyond shareholders’ that focus solely on stock price. In the media, this structure has worked with some success (The New York Times Company, for example, has a dual-class structure).
But the problem with this structure is that the shareholders’ voice of dissent is locked out. And studies have shown that in general, this type of dual-class structure does not perform as well as traditional arrangements.
Recent events at Google and other technology companies show that perhaps this control may be bad not only for the companies but also for the founders, who are increasingly living in a world bereft of checks and balances.Silicon Valley has for the most part held public shareholders in mixed regard. Preferring to keep them on the sidelines is not a new development.
Google was a leader in this movement. When it went public in 2004, it did so using a dual-class structure. Its co-founders, Sergey Brin and Larry Page, were issued shares with 10 votes apiece, while public shareholders received shares with only one vote. The idea was to ensure that the co-founders kept control of Google even if they sold some of their shares.
But boundaries get pushed, as does everything in the tech world. Facebook went further in restricting shareholder control when it went public by adopting a dual-class structure that allowed its co-founder Mark Zuckerberg to keep control even if he owned less than 10 percent of the company. In fact, if Mr. Zuckerberg dies, his heirs still have the potential to control the company.
Putting this in perspective, had Apple gone public with Facebook’s structure, Steven P. Jobs’s widow, Laurene Powell Jobs, and Apple’s co-founder Steve Wozniak (most recently a “Dancing With the Stars” contestant) would possibly still be in control.
Not to be outdone, Google proposed last year that the company issue a new class of shares with no voting rights. According to public documents filed by Google, this share class was put into place at the behest of the founders, being justified by Mr. Brin and Mr. Page as allowing them to “concentrate on the long term.”
The idea is that absent the pressures of the public market, executives can look after the long-term best interests of the company. This will allow Google to experiment with things like Google Glass, which may not be immediately profitable.
It’s an alluring argument. On the plus side, this allows for the company to look out for a wide array of interests beyond shareholders’ that focus solely on stock price. In the media, this structure has worked with some success (The New York Times Company, for example, has a dual-class structure).
But the problem with this structure is that the shareholders’ voice of dissent is locked out. And studies have shown that in general, this type of dual-class structure does not perform as well as traditional arrangements.
by Steven M. Davidoff, Dealbook | Read more:
Image: Harry Campbell
