The recent high-profile IPO of SpaceX, which famously utilizes dual-class shares to give Elon Musk nearly 85% control, has reignited debate over dual-class shares themselves, and whether they hurt or help shareholders.
Some of the most revered and successful business builders have dual-class share structures at their companies, from Michael Dell at Dell to Warren Buffett at Berkshire Hathaway to Sergey Brin and Larry Page at Alphabet; yet to say that dual-class shares are unloved within so-called good governance circles, would be an understatement.
Few governance structures elicit such scorn from governance theorists. For many theorist critics and proxy advisory firms, the principle of “one share, one vote” is treated as a holy grail, a moral imperative that must be forced on every company regardless of context, industry, or leadership caliber. A veritable cottage industry exists of governance experts critical of dual-class shares, but one would be hard pressed to find many defenders, much less enthusiastic supporters, of dual-class structures.
But away from the mindless, mechanical checklists of proxy rating firms Glass Lewis and ISS, this reflexive reflex collides with the messy reality of business building and actual leadership, not to mention genuine business performance. In fact, we would argue that much of the crusade against dual-class shares is built on a foundation of ideological impulses and misguided theoretical dogma that completely fails to account for the outsized impact of exceptional individuals and the genuine financial results of the enterprise such governance influencers should hope to improve. So what exactly do investors and CEOs seem to understand about dual-class shares that governance theorists miss?
