John Plender writes in the Financial Times about the awful trend of dual class IPOs from managers who want to have the benefits of access to public capital but maintain the benefits of private control.
The big investment institutions are losing their battle against the use of dual-class share structures. That much is clear from the forthcoming initial public offering of stock in Dropbox, the internet storage group. As well as proposing to float with B shares that carry 10 votes for every class A single vote, it aims to have the right to issue non-voting C shares similar to those of Snap in last year’s notoriously voteless IPO. That offering, from the promoter of the disappearing message app Snapchat, marked a low point in corporate governance in a tech sector where standards were already egregiously poor.Dropbox’s founders have been undeterred by index providers’ more restrictive post-Snap approach to including dual-vote companies in the indices, which implies lower liquidity for the shares and thus a loss of value. The same is true of Spotify, the digital music services outfit, which has filed for a direct listing that entails extra voting rights for the founders.The rot — at least from many big investors’ perspective — set in with Google’s dual-class listing in 2004. Such listings increased in the US from 487 in 2005 to 701 in 2015, an eye-catching 44 per cent rise. Among those issuers have been high-profile tech companies such as Facebook, Groupon, LinkedIn, TripAdvisor and Zynga. In effect investors have been trading in their governance rights in the hope of backing another Google and the belief that the founding entrepreneurs are miracle workers.