By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Over dinner in San Francisco recently, an activist investor and an internet entrepreneur got into a heated discussion. The two men, with a gap of about two decades between them, were debating the practice of many young, growth businesses in the technology world – though it happens elsewhere too – to issue multiple classes of stock, generally one for hoi polloi investors in public offerings and another for founders and other insiders with super-charged voting powers.
This, the investor felt, violates a tenet of democratic capitalism: “one share, one vote.” It treats public shareholders of Silicon Valley’s hottest properties as second-class citizens. Not so, argued the information industrialist, now working in his second mega-startup. Visionaries need to build their businesses without the distraction of having to please uppity investors every quarter. Giving them control of their boards of directors and key corporate decisions is vital.
The protagonists sort of agreed to disagree. Investors don’t have to buy shares if they don’t like the voting arrangements – though some might say that companies often don’t have to seek money from public investors, either.
But surely there is a way to square this circle. What if a mechanism could be created that would allow founders like Facebook’s Mark Zuckerberg or GoPro’s Nicholas Woodman to execute their plans for global domination, leavened with promises to make the world more awesome, without pesky shareholder interference – but also preserving in the long term the one share, one vote concept?