Of all the things to be upset about these days, shareholders not being able to vote for who is on the board of Snap and companies like it has got to be low on the list.
And yet, people have to be upset about something. Former Vanguard CEO John Brennan recently said regulators should look at the issue of companies issuing shares without voting rights, as Snap did last week. On Thursday, regulators at the Securities and Exchange Commission did just that. Its Investor Advisory Committee convened in Washington to discuss the topic. Commission Kara Stein said: “Unequal voting rights present complex and new issues that need to be understood and addressed,” according to Reuters.
I’m not buying what these critics are selling. The argument is that voting-rights schemes that keep the founders in control to the disadvantage of newer owners are unfair. Google (GOOG) famously gave its two founders and early CEO shares with “super” voting rights. This meant that they could control the company without owning a majority of the stock. Google did not invent this maneuver, by the way, but it did popularize it in Silicon Valley. (Steve Jobs said he wished he had thought of it when he co-founded Apple.) Snap (SNAP) took matters a step further by giving new shareholders no voting rights.
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My beef is that while this isn’t good governance—it’s not—there’s nothing unfair about it. Investors don’t need to be “protected” from greedy founders, who likely will use their control to make decisions for the long term. The reason they don’t need protection is that no one is forcing them to own the shares. If you don’t like Evan Spiegel and Bobby Murphy’s governance techniques, don’t own their company.
For what it’s worth, unequal voting rights don’t mean a company won’t listen to shareholders. It turns out that founders would prefer their valuations be higher rather than lower. Witness Google’s willingness to hire a chief financial officer to clean house and to show investors the power of the Google business and the containment of its “other bets.”
In investing there’s no need to man the barricades. Just don’t buy the stock.
