TechCentralTechCentral
    Facebook Twitter YouTube LinkedIn
    Facebook Twitter LinkedIn YouTube
    TechCentral TechCentral
    NEWSLETTER
    • News

      Unlawful Eskom strike costing South Africa three stages of load shedding

      1 July 2022

      Striking Eskom workers will face consequences: De Ruyter

      1 July 2022

      The AI tool that has changed my life as a developer

      1 July 2022

      Google.co.za is down and the domain is pending deletion

      1 July 2022

      US files charges over South African bitcoin fraud scheme

      1 July 2022
    • World

      Meta girds for ‘fierce’ headwinds

      1 July 2022

      Graphics card prices plummet as crypto demand dries up

      30 June 2022

      Bitcoin just had its worst quarter in a decade

      30 June 2022

      Samsung beats TSMC to 3nm chip production

      30 June 2022

      Napster plots crypto comeback

      29 June 2022
    • In-depth

      The NFT party is over

      30 June 2022

      The great crypto crash: the fallout, and what happens next

      22 June 2022

      Goodbye, Internet Explorer – you really won’t be missed

      19 June 2022

      Oracle’s database dominance threatened by rise of cloud-first rivals

      13 June 2022

      Everything Apple announced at WWDC – in less than 500 words

      7 June 2022
    • Podcasts

      How your organisation can triage its information security risk

      22 June 2022

      Everything PC S01E06 – ‘Apple Silicon’

      15 June 2022

      The youth might just save us

      15 June 2022

      Everything PC S01E05 – ‘Nvidia: The Green Goblin’

      8 June 2022

      Everything PC S01E04 – ‘The story of Intel – part 2’

      1 June 2022
    • Opinion

      Has South Africa’s advertising industry lost its way?

      21 June 2022

      Rob Lith: What Icasa’s spectrum auction means for SA companies

      13 June 2022

      A proposed solution to crypto’s stablecoin problem

      19 May 2022

      From spectrum to roads, why fixing SA’s problems is an uphill battle

      19 April 2022

      How AI is being deployed in the fight against cybercriminals

      8 April 2022
    • Company Hubs
      • 1-grid
      • Altron Document Solutions
      • Amplitude
      • Atvance Intellect
      • Axiz
      • BOATech
      • CallMiner
      • Digital Generation
      • E4
      • ESET
      • Euphoria Telecom
      • IBM
      • Kyocera Document Solutions
      • Microsoft
      • Nutanix
      • One Trust
      • Pinnacle
      • Skybox Security
      • SkyWire
      • Tarsus on Demand
      • Videri Digital
      • Zendesk
    • Sections
      • Banking
      • Broadcasting and Media
      • Cloud computing
      • Consumer electronics
      • Cryptocurrencies
      • Education and skills
      • Energy
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Motoring and transport
      • Public sector
      • Science
      • Social media
      • Talent and leadership
      • Telecoms
    • Advertise
    TechCentralTechCentral
    Home»World»Silicon Valley cult of founder control under fire

    Silicon Valley cult of founder control under fire

    World By Agency Staff25 September 2017
    Facebook Twitter LinkedIn WhatsApp Telegram Email

    Silicon Valley spent more than a decade finding ways to give company founders more control. When Facebook tried to follow suit, shareholders pushed back.

    Google started it with a 2004 initial public offering that gave co-founders Larry Page and Sergey Brin voting rights well beyond their economic stakes in the search giant. Groupon, Zynga and Facebook did it, too, and this year Snap sold stock with no voting rights at all.

    In each case, investors went along, buying into the argument that founders need control so they can carry out their long-term visions. Sometimes shareholders sued, and invariably lost.

    This really is the death knell for existing companies trying to adopt a non-voting share class

    In 2015, Facebook doubled down with a proposed new share class to solidify co-founder Mark Zuckerberg’s grip on the social media giant forever, even if he sold almost all his stock. Shareholders sued again, and this time they won. Facebook scrapped its plans on Friday, just days before a class-action lawsuit challenging the move was set to go to trial.

    “This really is the death knell for existing companies trying to adopt a non-voting share class,” said Ken Bertsch, executive director at the Council of Institutional Investors, a nonprofit group that advocates for strong corporate governance.

    There are other signs of sentiment shifting. In political and regulatory spheres, there’s a new push to rein in US Internet companies, which have grown to become the world’s most valuable public corporations in recent years.

    Mark Zuckerberg

    In capital markets, S&P Global recently barred stocks with multiple share classes from joining its main US indexes — excluding Snap, although Facebook was grandfathered in. And London Stock Exchange unit FTSE Russell announced a list of more than 30 companies it would bar from its indexes unless they raised the percentage of voting rights accorded to public investors. MSCI, another major index provider, also spoke out against these structures recently.

    “When you create these special classes of shares that are not aligned with the economic interests of the shareholders, some will say that’s poor corporate governance,” George Maris, portfolio manager at Janus Capital, said. “It’s essentially trying to have your cake and eat it, too. You want someone else’s money but the class is divorced from what the shareholders want.”

    Special share arragements

    In the tech sector, these special share arrangements often originate with venture capital investors when companies are private. Travis Kalanick had an elaborate way of maintaining control of Uber Technologies, for example. But even private companies are starting to have to answer to shareholder scrutiny: Kalanick resigned earlier this year after a series of scandals at the ride-hailing provider.

    The lawyers challenging Facebook said that with Zuckerberg taking back his plan, they “achieved everything we could have hoped to obtain”, according to Lee Rudy, a partner at Kessler Topaz Meltzer & Check.

    Former Uber CEO Travis Kalanick

    “This case is important in the ongoing struggle between Silicon Valley and the belief that founders should maintain ultimate control,” Stuart Grant, an attorney for shareholders at law firm Grant & Eisenhofer, said. “Once you ask for public money, that changes.”

    Not everyone’s convinced Zuckerberg’s decision will dilute other founders’ control. Zuckerberg, for his part, said he made the decision because Facebook’s stock had appreciated so much he didn’t need a new class of shares to retain control.

    If S&P and indexes had said they won’t include the stock, then a company like Facebook would say fine, don’t put us in the index — it’s a question of who wags the dog

    Facebook shares are up about 30% in the last 12 months, valuing the company at US$495bn. They slipped as much as 3.2% to $165.12 on Monday, the biggest intraday decline since 12 June.

    The suit against Facebook also contained embarrassing revelations that the CEO may not have wanted to discuss in court. So the company may have scrapped the plan to avoid blushes, rather than appease outside shareholders. Zuckerberg also is dealing with several political crises, most notably investigations into whether Facebook ads were used by Russia to sow discord ahead of the US presidential election last year.

    And while index providers wield power because hundreds of billions of dollars are invested against their benchmarks, it’s not clear if their dim view of multiple-class structures is enough to dissuade a founder who wants to retain control.

    “If S&P and indexes had said they won’t include the stock, then a company like Facebook would say fine, don’t put us in the index — it’s a question of who wags the dog,” said Matt Maley, an equity strategist at Miller Tabak & Co.  — Reported by Oliver Renick and Sarah Frier, (c) 2017 Bloomberg LP

    Facebook Google Larry Page Mark Zuckerberg Sergey Brin Travis Kalanick Uber
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email
    Previous ArticleLondon ban: new Uber CEO apologises for ‘mistakes’
    Next Article Deloitte client data hit in cyberattack

    Related Posts

    Google.co.za is down and the domain is pending deletion

    1 July 2022

    Meta girds for ‘fierce’ headwinds

    1 July 2022

    Graphics card prices plummet as crypto demand dries up

    30 June 2022
    Add A Comment

    Comments are closed.

    Promoted

    Billetterie simplifies interactions between law firms and clients

    30 June 2022

    Think herding cats is tricky? Try herding a cloud

    29 June 2022

    How your business can help hybrid workers effectively

    28 June 2022
    Opinion

    Has South Africa’s advertising industry lost its way?

    21 June 2022

    Rob Lith: What Icasa’s spectrum auction means for SA companies

    13 June 2022

    A proposed solution to crypto’s stablecoin problem

    19 May 2022

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2022 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.