Does the non-voting feature of Snap’s Class A common stock offer lessons to startups or corporate governance gurus?
Even before Snap’s Form S-1 filing a few weeks ago, commentators were shocked and appalled that Snap dared to offer non-voting shares to investors willing to purchase non-voting shares. There are people who believe deeply in “best practices” and one-size-fits-all corporate governance rules. Erin Griffith at Fortune’s Term Sheet newsletter has declared that “This isn’t a rational investment.”
Griffith then goes on to describe how Snap and companies like it need to constantly change to be ahead of trends, and describes why Snap management needs the freedom to operate:
“Aside from pent-up IPO demand, Snap’s selling point is its ability to repeatedly tap into the next trend before its competitors. Ben Thompson calls this the “Gingerbread Man strategy.” (As in “Run, run, as fast as you can, you’ll never catch me, I’m the gingerbread man!”) By the time competitors start ripping them off (ahem, Facebook…), it doesn’t matter. They’re already working on the next thing.”
By the time the IPO closes, there will be about 4.5 billion shares of Snap outstanding of various classes. Does anyone really expect that owning even a few million voting shares would have made a dent in their ability to be heard?
The demand for this offering is not based on their ability to bend Evan Speigel’s ear and provide ideas about kids messaging.
At their last shareholder meeting, Google* had about 294 million shares of Class A with one vote per share and about 49 million shares of Class B with 10 votes per share. Management controlled almost 60% of the vote. How meaningful was the Class A vote? Feel empowered when you filled out that proxy?
Since their IPOs:
- Google went from $50.12/share on August 19, 2004 to $831.66 as of this writing
- Facebook went from $38.23/share on May 18, 2012 to $136.16 as of this writing
- Twitter went from $44.90/share on November 7, 2013 to $16.10 as of this writing
Even Enron, the poster boy for all that is bad in corporate behavior, had state of the art governance structures in place:
“Whatever its flaws, the committee followed all the rules laid down by federal regulators, stock exchanges, and governance experts regarding director pay, independence, disclosure, and financial expertise. Enron collapsed in large part because the rules didn’t accomplish what the experts hoped they would.”
This is not to say that “oppressive” structures lead to good results. It is to say that structures that deemed “not rational” by commentators may have a purpose that benefits shareholders. Maybe one-size doesn’t fit all.