The main idea behind so-called super voting stock is to ensure that control over company stays in founders (early investors) hands. When company issue shares to founders, employees, early stage investors (key players in the company) than number of shares that founders hold could be diluted. In order to avoid this super voting shares issued to company’s key personnels.
Under the single class structure each share issued by the company maintain equal equity to voting power ratio. Super voting shares should not be mistakenly considered as preferred share (insuring priority divided payment and priority while bankruptcy & liquidation). There’s available one more type of shares called non-voting shares.
Super voting shares (dual-class shares) are very controversial. It can contain two classes of shares or even more. Super voting shares give to founders 2x, 3x, 5x, 10x, 20x voting ratio (there’s no limit and decided by owners). For example Adam Neumann super voting power gave him 20 times voting power compared to ordinary shareholder. Companies with a few classes of shares tent to underperform market expectations (for example WeWork).
In some stock exchanges it’s prohibited to list the company with dual-class stock structure. But competition between stock exchanges so high that it led to applying extra terms and conditions that permitted company’s IPO with dual-class stock structure. This situation insure that control stays in co-founders hands, but after IPO most investors expect holders of super voting shares to give up this powerful privilege.
Here’s a list of famous US companies with dual-class stock (as per September 2019):
- Alphabet (parent company of Google), 3 stock classes (A class = 1 vote, B class = 10 votes, C class = no voting).
- Berkshire Hathaway, A class = 1 vote, B class =1/10000 vote.
- Coca Cola Bottling Co, A class =1 vote, B class =10 vote.
- Dell Technologies, A class=10 vote, B class=10 vote, C class =1 vote, D class =1 vote.
- Facebook, A class =1 vote, B class =10 vote.
- Ford Motor, A class =1 vote, B class = always control 40% of the vote.
- Hyatt Hotels, A class =1 vote, B class = 10 vote.
- Lyft, A class =1 vote, B class =20 vote.
- McCormick & Company, common share =1 vote, no voting common share =no voting. Shares in excess of 10% of outstanding votes held by the same owner could not be count.
- Nike, A class = elects 75% of board, B class = elects 25% of board.
- PJT Partners, A class =1 vote, B class = formula (currently gets about 86604 votes per share).
- Slack Technologies, A class =1 vite, B class =10 votes, Sunsets in 2029 (no super voting shares after 2029).
- Snap, A class =no votes, B class =1 vote, C class = 10 votes.
- The Boston Beer Company, A class = minority of directors (3/7), B class =majority of directors (4/7).
- The J. M. Smucker Company, time pass votes = 1 vote per share until owned at least 4 years, after that 1 share = 10 votes.
- The New York Times Company, A class = elect 30% of the board, B class = elect 70% of the board.
As we can see there’s possible different combinations of A, B, C, D, etc stocks. Every company can choose single class or dual class stock structure.
Low equity holdings with super voting power considered as disadvantage for big investors. Shareholders with super voting stock only bear a small financial risk compared to amount of control over decision making process. Majority of companies that apply for IPO have founders who are so charismatic and visionary that the company may not be as successful without them. Some investors motivated by “fear of missing out” potential profits that they accept the risk and invest in companies with a few stock classes. Most of the times super voting rights misused for covering questionable corporate governance.
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