Second-class shareholders

Commenting on James Surowiecki’s recent New Yorker piece, Felix Salmon decries the structure of Facebook’s IPO, which left Mark Zuckerberg with 57% of the voting shares while actually owning only 18% of the company:

The reason to be concerned about the rise of companies with dual-class share structures, then, is not all that dissimilar to the reason to be concerned about the rise of big private companies more generally. The stock market is no longer the common ownership of the means of production: it’s a place where early-stage investors can exit to a group of muppets and high-frequency traders.

Initial public offering (IPO) investors are increasingly being offered “ownership” of companies that comes with little or no actual control.  As Surowiecki puts it, companies are effectively telling investors, “Thanks for your money. Now shut up.”  It’s a very peculiar system that gives majority stockholders a non-majority say in corporate governance.

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