You Can’t Fire Mark Zuckerberg’s Kid’s Kids
November 30, 2019 11:14 AM Subscribe
One formerly esoteric aspect of the financial side of Silicon Valley has seen a lot of press in the past few months is the dual-tier stock structure - a system where the founders of a company are granted a special tier of stock that grants them greater voting power, often allowing them to maintain full control of the company votewise with only a minority stake. However, thanks to high profile cases like WeWork and Facebook illustrating the dangers of such systems and how they render leadership untouchable, there has been growing criticism of the practice. Re/Code's Kara Swisher, writing for the New York Times, lays out why the practice continues to endure, even now - the dual-tier structure works - until it doesn't. (SLNYT)
Yeah except yes they can and they are? No wonder Zuck is feasting with Trump. This is extremely depressing.
posted by grumpybear69 at 11:35 AM on November 30, 2019 [4 favorites]
posted by grumpybear69 at 11:35 AM on November 30, 2019 [4 favorites]
Yeah except yes they can and they are?
Is it really useful to assume that people are giving precisely reasoned legal analyses that have the force of precedent, rather than asserting their moral opinion, as symbioid is pretty clearly doing?
posted by Etrigan at 11:40 AM on November 30, 2019 [19 favorites]
Is it really useful to assume that people are giving precisely reasoned legal analyses that have the force of precedent, rather than asserting their moral opinion, as symbioid is pretty clearly doing?
posted by Etrigan at 11:40 AM on November 30, 2019 [19 favorites]
I lived through Google's IPO with dual class shares. It's really very simple. If the founders have control, they can keep control. They just wave a wand and make it so. Then it's up to investors on whether to take the deal or not. "Do you trust us, the founders, to continue running the company?" The answer often seems to be "yes". Which, as Swisher notes, is just fine right until it doesn't work.
The other option is the shareholders vote on the big issues. But that leads to all sorts of weirdness too. You get activist investors like Icahn buying up 5-7% stakes and then aggressively politicking, which can lead to that very interested minority running the company. Also a huge amount of public stock is owned by passive index funds and ETFs which don't really have any interest or ability to vote intelligently on shareholder resolutions. And is "one dollar one vote" really the best way to manage a company at the top?
As Swisher points out, there's plenty of academics arguing both directions on what works. The reality is whoever is the CEO or other lead exec position has most of the power, at least until the board gets involved. Which is what happened in WeWork, Neumann's control or not.
posted by Nelson at 11:45 AM on November 30, 2019 [5 favorites]
The other option is the shareholders vote on the big issues. But that leads to all sorts of weirdness too. You get activist investors like Icahn buying up 5-7% stakes and then aggressively politicking, which can lead to that very interested minority running the company. Also a huge amount of public stock is owned by passive index funds and ETFs which don't really have any interest or ability to vote intelligently on shareholder resolutions. And is "one dollar one vote" really the best way to manage a company at the top?
As Swisher points out, there's plenty of academics arguing both directions on what works. The reality is whoever is the CEO or other lead exec position has most of the power, at least until the board gets involved. Which is what happened in WeWork, Neumann's control or not.
posted by Nelson at 11:45 AM on November 30, 2019 [5 favorites]
You want control? Keep it private.
Zuckerberg did in fact try to keep Facebook private as long as possible. FB finally went public due to a combination of internal employee pressure to let them cash out their stock options, and because the company had so many shareholders they were facing the same SEC regulatory requirements as a public company with none of the benefits.
As suggested in the article, I’d be in favor of regulations that sunset the dual-class structure after a given time period. I’d also be fine with dropping the structure as a condition for going public. I do think it serves a valid purpose to protect founders from letting early investors seize control of a company, but it has to have its limits.
(I would of course strongly prefer regulations that forced substantial or total employee ownership, but failing that kind of more radical change, sunsetting dual-class structures seems like a reasonable reform.)
posted by a device for making your enemy change his mind at 11:52 AM on November 30, 2019 [4 favorites]
Zuckerberg did in fact try to keep Facebook private as long as possible. FB finally went public due to a combination of internal employee pressure to let them cash out their stock options, and because the company had so many shareholders they were facing the same SEC regulatory requirements as a public company with none of the benefits.
As suggested in the article, I’d be in favor of regulations that sunset the dual-class structure after a given time period. I’d also be fine with dropping the structure as a condition for going public. I do think it serves a valid purpose to protect founders from letting early investors seize control of a company, but it has to have its limits.
(I would of course strongly prefer regulations that forced substantial or total employee ownership, but failing that kind of more radical change, sunsetting dual-class structures seems like a reasonable reform.)
posted by a device for making your enemy change his mind at 11:52 AM on November 30, 2019 [4 favorites]
we all agree saverin was done dirty, tho, right?
posted by slater at 12:05 PM on November 30, 2019 [4 favorites]
posted by slater at 12:05 PM on November 30, 2019 [4 favorites]
I have to admit it’s kinda strange that his practice is legal but creating your own private currency isn’t. It’s hard to tell them apart in a practical sense.
posted by mhoye at 12:35 PM on November 30, 2019 [6 favorites]
posted by mhoye at 12:35 PM on November 30, 2019 [6 favorites]
Is it really useful to assume that people are giving precisely reasoned legal analyses that have the force of precedent, rather than asserting their moral opinion, as symbioid is pretty clearly doing?
Probably not, but I'm expressing my existential angst at the actual reality of the situation. I wish it were so that symbiod's worldview was law, because I agree wholeheartedly that the world should be that way.
posted by grumpybear69 at 12:36 PM on November 30, 2019
Probably not, but I'm expressing my existential angst at the actual reality of the situation. I wish it were so that symbiod's worldview was law, because I agree wholeheartedly that the world should be that way.
posted by grumpybear69 at 12:36 PM on November 30, 2019
I dunno. There are a lot of good reasons for the dual class structure and at the end of the day, it’s up to investors to choose if this is how they want to invest. I prefer strongly to work for companies which are either private or have this structure, since they can actually plan for more than short term results. And protection from the more evil kind of activist investor (not talking about activist in the political sense) strikes me as increasingly necessary.
posted by frumiousb at 12:41 PM on November 30, 2019 [8 favorites]
posted by frumiousb at 12:41 PM on November 30, 2019 [8 favorites]
It becomes more of a problem when the company is on the verge of becoming a stateless superpower.
posted by grumpybear69 at 1:04 PM on November 30, 2019 [11 favorites]
posted by grumpybear69 at 1:04 PM on November 30, 2019 [11 favorites]
IIRC, News Corp. pioneered this sort of arrangement, with the Murdoch family's shares being qualitatively superior to ordinary shares available to everyone else.
posted by acb at 1:13 PM on November 30, 2019
posted by acb at 1:13 PM on November 30, 2019
It becomes more of a problem when the company is on the verge of becoming a stateless superpower.
I totes agree that is a problem but it feels like a completely separate problem to me. Unless you think that investors are going to be less money-grubbing and power-expanding than the founders for some reason. If a corporation wields dangerous power I think it would be better to not make that available to just whoever has deep enough pockets
posted by aubilenon at 1:31 PM on November 30, 2019 [2 favorites]
I totes agree that is a problem but it feels like a completely separate problem to me. Unless you think that investors are going to be less money-grubbing and power-expanding than the founders for some reason. If a corporation wields dangerous power I think it would be better to not make that available to just whoever has deep enough pockets
posted by aubilenon at 1:31 PM on November 30, 2019 [2 favorites]
a) Fuck capitalism
b) Given capitalism in its current form: Dual class shareholding capability is one of the few tools that can stop rapacious leveraged buyouts, or large institutional investors saying "fuck anything else but extracting value/maximizing shareholder value" and the world jumping to click their heels. Ultimately, a Hard No from me on eliminating them.
posted by lalochezia at 1:51 PM on November 30, 2019 [3 favorites]
b) Given capitalism in its current form: Dual class shareholding capability is one of the few tools that can stop rapacious leveraged buyouts, or large institutional investors saying "fuck anything else but extracting value/maximizing shareholder value" and the world jumping to click their heels. Ultimately, a Hard No from me on eliminating them.
posted by lalochezia at 1:51 PM on November 30, 2019 [3 favorites]
It's really very simple. ... [Then] it's up to investors on whether to take the deal or not.
When a company has an effective monopoly the way Google or Facebook does, the rational thing for investors to do is to accept a bad deal if that's the only way to get a piece of it. That's why this sort of thing should be better regulated.
And is "one dollar one vote" really the best way to manage a company at the top?
I would suggest that it's better than a single, insanely rich person (or a small handful of them) calling all the shots.
posted by Candleman at 2:00 PM on November 30, 2019 [3 favorites]
When a company has an effective monopoly the way Google or Facebook does, the rational thing for investors to do is to accept a bad deal if that's the only way to get a piece of it. That's why this sort of thing should be better regulated.
And is "one dollar one vote" really the best way to manage a company at the top?
I would suggest that it's better than a single, insanely rich person (or a small handful of them) calling all the shots.
posted by Candleman at 2:00 PM on November 30, 2019 [3 favorites]
To lalochezia's point, the immediately available alternative to dual-class stock systems is not holding big companies accountable to the broader community, it's holding them accountable to their share-holders on a one-dollar-one-vote basis. I absolutely believe that Mark Zuckerberg is a problem, and Facebook as an institution is an even bigger problem, but I do not see any reasonable argument that either one would be less of a problem if Zuckerberg had a group of Wall Street finance bros watching over his shoulder and threatening to fire him if Facebook's profit margins ever slipped.
(Which is not to say that more tightly regulating dual-class stock arrangements is a bad idea! It's just not going to do anything about the real reasons that most of us think these enormous agglomerations of power are a problem.)
posted by firechicago at 2:04 PM on November 30, 2019 [5 favorites]
(Which is not to say that more tightly regulating dual-class stock arrangements is a bad idea! It's just not going to do anything about the real reasons that most of us think these enormous agglomerations of power are a problem.)
posted by firechicago at 2:04 PM on November 30, 2019 [5 favorites]
Dual class shareholding capability is one of the few tools that can stop rapacious leveraged buyouts...
Yelling at my four-year-old is one of the few tools that can keep them from walking across a busy street. Doesn’t make it the best tool in the box, especially for all the other times that they aren’t walking across a busy street.
posted by Etrigan at 2:15 PM on November 30, 2019 [6 favorites]
Yelling at my four-year-old is one of the few tools that can keep them from walking across a busy street. Doesn’t make it the best tool in the box, especially for all the other times that they aren’t walking across a busy street.
posted by Etrigan at 2:15 PM on November 30, 2019 [6 favorites]
Yeah, it's easy to talk about what's wrong with Facebook etc., but what's missing from the NYT article is any suggestion of how any of the likely alternatives would be better. The argument seems to be that Zuckerberg is bad, therefore less Zuckerberg would necessarily be good, but who is the "you" in "You Can’t Fire Mark Zuckerberg’s Kid’s Kids"?
Here’s the problem with tech companies using dual-class stock schemes: They can work well until they do not.
Just like everything else.
posted by A Thousand Baited Hooks at 2:24 PM on November 30, 2019 [1 favorite]
Here’s the problem with tech companies using dual-class stock schemes: They can work well until they do not.
Just like everything else.
posted by A Thousand Baited Hooks at 2:24 PM on November 30, 2019 [1 favorite]
Dunning-Kruger Financial manages most of the world's investments.
posted by srboisvert at 3:15 PM on November 30, 2019 [6 favorites]
posted by srboisvert at 3:15 PM on November 30, 2019 [6 favorites]
Don't have to worry about a half dozen unaccountable multibillionaires asserting dynastic control over the world if there aren't any *taps forehead*
posted by Reyturner at 3:42 PM on November 30, 2019 [13 favorites]
posted by Reyturner at 3:42 PM on November 30, 2019 [13 favorites]
IIRC, News Corp. pioneered this sort of arrangement, with the Murdoch family's shares being qualitatively superior to ordinary shares available to everyone else.
From what I can tell, Ford Motor Company has been this way since they went public in 1956.
posted by Huffy Puffy at 4:49 PM on November 30, 2019 [1 favorite]
From what I can tell, Ford Motor Company has been this way since they went public in 1956.
posted by Huffy Puffy at 4:49 PM on November 30, 2019 [1 favorite]
I thought the Vanderbilt family were masters of share ownership manipulation in the 1880s.
posted by Narrative_Historian at 10:12 PM on November 30, 2019
posted by Narrative_Historian at 10:12 PM on November 30, 2019
What a crock! Imagine a country where only some people can vote!
* waves at America *
posted by klanawa at 11:28 PM on November 30, 2019
* waves at America *
posted by klanawa at 11:28 PM on November 30, 2019
There are a lot of good reasons for the dual class structure and at the end of the day, it’s up to investors to choose if this is how they want to invest. I prefer strongly to work for companies which are either private or have this structure, since they can actually plan for more than short term results.
Yes. One very good reason for investors to support this kind of structure is if they think the current leadership is doing a good job, and they don't want other shareholders to be able to band together to oust them or for vulture investors to swoop in and strip the company of value for short-term gain. Of course, "doing a good job" in this context means generating value for shareholders rather than doing actual good, but I still don't see any reason why this structure is worse than any other kind of public company.
posted by A Thousand Baited Hooks at 11:37 PM on November 30, 2019 [1 favorite]
Yes. One very good reason for investors to support this kind of structure is if they think the current leadership is doing a good job, and they don't want other shareholders to be able to band together to oust them or for vulture investors to swoop in and strip the company of value for short-term gain. Of course, "doing a good job" in this context means generating value for shareholders rather than doing actual good, but I still don't see any reason why this structure is worse than any other kind of public company.
posted by A Thousand Baited Hooks at 11:37 PM on November 30, 2019 [1 favorite]
"Tell your boss he is not Mark Zuckerberg. He is Mark Zuckerberg the second."
posted by Huffy Puffy at 6:55 AM on December 1, 2019
posted by Huffy Puffy at 6:55 AM on December 1, 2019
I mean...google Eddie Lampert and then tell me you don't agree with the above.
There's a pretty simple fix for Lampert's sort - make it so that they have to retain the debt incurred when they engage in leveraged buyouts, and you'll suddenly see them vanish.
but I still don't see any reason why this structure is worse than any other kind of public company.
Exhibit A is Silicon Valley. A lot of the issues with the Valley can be traced back to the fact that many of the companies involved are structured this way, with the founder having sole control of the company. And while this means that the company can be insulated from shot-term pressure, what we've seen over and over - from Alphabet to Facebook to Uber to WeWork - is that it also means that the leadership is insulated from legitimate challenges to their authority stemming from their poor behavior. For example, it should not be surprising that three of the above companies have major scandals involving sexual harassment from their upper tiers.
posted by NoxAeternum at 8:15 AM on December 1, 2019 [2 favorites]
There's a pretty simple fix for Lampert's sort - make it so that they have to retain the debt incurred when they engage in leveraged buyouts, and you'll suddenly see them vanish.
but I still don't see any reason why this structure is worse than any other kind of public company.
Exhibit A is Silicon Valley. A lot of the issues with the Valley can be traced back to the fact that many of the companies involved are structured this way, with the founder having sole control of the company. And while this means that the company can be insulated from shot-term pressure, what we've seen over and over - from Alphabet to Facebook to Uber to WeWork - is that it also means that the leadership is insulated from legitimate challenges to their authority stemming from their poor behavior. For example, it should not be surprising that three of the above companies have major scandals involving sexual harassment from their upper tiers.
posted by NoxAeternum at 8:15 AM on December 1, 2019 [2 favorites]
Ehh I think the content of the article was pretty neutral on dual-class shares. Perhaps because, as they point out, the New York Times Company has them.
Still, though, Bezos owns about 20% of Amazon in regular, totally normal Class A shares. The technical corporate governance issue is interesting but the dual-class structure clearly isn't necessary to have a founder-driven tech behemoth.
posted by vogon_poet at 3:41 PM on December 1, 2019
Still, though, Bezos owns about 20% of Amazon in regular, totally normal Class A shares. The technical corporate governance issue is interesting but the dual-class structure clearly isn't necessary to have a founder-driven tech behemoth.
posted by vogon_poet at 3:41 PM on December 1, 2019
I absolutely believe that Mark Zuckerberg is a problem, and Facebook as an institution is an even bigger problem, but I do not see any reasonable argument that either one would be less of a problem if Zuckerberg had a group of Wall Street finance bros watching over his shoulder and threatening to fire him if Facebook's profit margins ever slipped.
I do not think that Zuckerberg would be allowed to take the hardline stance he has on allowing politicians to lie if he didn't have control. This is a position that has been a loser for them publicly, over a tiny revenue stream - it is clear that Zuckerberg pushes it because Don't You Plebs Know That I Know Better Than You.
posted by NoxAeternum at 1:54 PM on December 2, 2019 [1 favorite]
I do not think that Zuckerberg would be allowed to take the hardline stance he has on allowing politicians to lie if he didn't have control. This is a position that has been a loser for them publicly, over a tiny revenue stream - it is clear that Zuckerberg pushes it because Don't You Plebs Know That I Know Better Than You.
posted by NoxAeternum at 1:54 PM on December 2, 2019 [1 favorite]
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Frankly fuck the stock market.
Employee ownership or bust.
posted by symbioid at 11:21 AM on November 30, 2019 [51 favorites]