To expand on the sibling comment, Facebook has two classes of shares. Class A shares have one vote and are the shares that are traded on stock exchanges. Class B shares get 10 votes each and are held by Zuckerberg and friends. Zuckerberg has enough Class B shares that he really can't be outvoted by other investors.
I had no idea companies could legally create vastly unequal schemes like that. How do people even find out about things like this? Is this information available somewhere? Impossible to make good investment decisions without this sort of knowledge.
Weeeeeell... it isn't a secret, that is true. And technically speaking there is no problem here.
But it is easy to imagine that this happened to be able to hoodwink someone with the "Zuckerburg only controls 10% of the shares!" style soundbites without being forced to point out that means control of the company.
Realistically this practice should probably be banned on the basis that Facebook could achieve a similar outcome with something like one class of shares and selling bonds to the public, or something. Allowing a "share" to break the one-share-one-vote principle is unnecessarily confusing and misleading.
Lawyers shouldn't be redefining words. These words are meant to mean something. Although this is unlikely to be a new practice, I think Berkshire had different classes of share.
> But it is easy to imagine that this happened to be able to hoodwink someone with the "Zuckerburg only controls 10% of the shares!" style soundbites without being forced to point out that means control of the company.
Does that hoodwinking matter, though? If you're unsophisticated enough to be tricked by this, you have 0% voting power. And at best you expected "someone other than zuckerburg, I guess, but I didn't look into who" to have voting power, and that seems so vague that it being false doesn't hurt you.
In practice, it leaves open the question of why anyone felt the need for 2 classes of shares. Why have 1 class A and 9 class B, instead of 100 shares for the company owner and 9 on the market? One of those is much simpler to work with. Maybe there is just some tax loophole that is being exploited here, but it looks like someone is getting scammed.
Not the biggest crisis I've seen today, but something that should get tidied up.
> Why have 1 class A and 9 class B, instead of 100 shares for the company owner and 9 on the market?
Because you want to sell more of the company without losing control. Changing that would be a lot more complicated than tidying up.
But consider a scenario where all shares have the same voting power, and class B shares have 100x the dividends and own 100x as many assets. With 100 class A and 9 class B.
In this scenario, the class A shares are much worse than class B shares. But the end result is the same: the founder can own 10% of the company value while having 90% of the votes.
Surely the founder isn't getting scammed here, despite their shares being so much weaker, right? And it would be strange to say the people with the superior class B shares are being scammed. But this is basically equivalent to having good class A and bad class B. So now what?
Having shares that have different rights is not really a new practice. For instance, it's what allows VCs to invest with more likelihood of recouping their investment, while still allowing for employees to get shares with a different payout structure. As long as these things are disclosed (and in Facebook's case they specifically call it out as a risk in the risks section of the annual report in a section titled "The dual class structure of our common stock and a voting agreement between certain stockholders have the effect of concentrating voting control with our CEO and certain other holders of our Class B common stock; this will limit or preclude your ability to influence corporate matters."
It's assumed that investors have a responsibility to read the information a company publishes for investors, so if someone were to invest blindly they'd only be hoodwinking themselves.
Ford famously pioneered it over a hundred years ago to keep control in the Ford family, which is still true today, though the family is now spread out enough that they don’t necessarily vote as a block on all matters.
Andreessen participated in that "hoodwink", convincing investors to cede control.
> Realistically this practice should probably be banned...
Post Jobs, Larry and Serge were determined to not be ousted from their own creation. Others founders followed suit. And since returns were so good, investors played along.
Methinks that after Zuck and Neumann and others, investors have lost their appetite for being sidelined.
Someone asked the other day about who owns the Facebook "super-voting" shares, besides Zuckerberg. These shares are not traded on any public exchange so the ability to track them is limited.
In the Facebook registration statement from 2012, one can get an idea of who owns these class B shares.
The London Stock Exchange doesn't allow such dual class share structures for exactly this reason. That's partly why it has become so unpopular with tech companies.
They are considering changing the rule but many of London's brokers and institutional investors strongly oppose it.
Tne NYSE used to restrict it. They relaxed the restrictions in the 1980's. Google was the company that started the trend in 2005. (Note they were sued by their shareholders and settled.) The percentage of companies using this type of structure was like 1% in 2005. By 2017 it was 22%. It is probably even higher today. It is used outside of Silicon Valley, too, but those non-tech companies have real products and services that produce revenue. They don't bait people with "free", spy on them and sell ads.
If I'm not mistaken there are some index funds that will exclude companies with dual class shares.
This is why "tech" companies can pursue outlandish projects that produce no revenue. Shareholders effectively have insufficient rights to question such decisions and hold the founders to account.
> You must be making investment decisions without looking at any corporate documents.
Well, I've never actually invested in any company before. Mostly because of stuff like this. I always assumed there's some insider information I'm missing out on.
As a start, every publicly traded company in the US publishes an annual and quarterly report that is available to anyone for free. Those generally have quite a bit of information about what's going on with the company, its structure, financial situation, management, etc.
Searching for `$COMPANY_NAME annual report` is a good start
This information is required to be in the articles of incorporation which are filed with the secretary of state. For public companies you can usually just google e.g. "Apple articles of incorporation" and the sec's copy will show up.
It adds a level of stability. Some institutional investors don't want shareholders to have power over a company because that opens the doors to things like hostile takeovers. Having all the voting power vested in the core "founders" means the company won't ever be subject to change from outside. So, if you like things as they are, you can rest assured that things likely will never change. Only a long term investor, someone willing to retain shares during a corporate crisis, really cares about actually voting out one board for another. A short term investor wants to ride on the coattails but will jump rather than attempt to change where those coattails are headed.
That power is still there. By selling their non-voting shares investors lower their price, which has knock-on impacts on the corporation. What is lost is the power to directly make corporate decisions.
Definitely not for individual-saving-for-retirement investors IMO (altough there might be some that think that's important, but they can't affect nothing really).
What matters most to these (me included) is the growth of the nest egg, by dividends or capital gains (which FB has delivered handsomely on the last decade).
For large institutional investors, it may be important. For activist investors, it certainly is.
