Shopify and the Problem of Shareholder “Approval” at Multi-Class Companies
Media reporting can make proxy season seem more dramatic than it is. While breathless coverage of board strife, impossibly high executive pay figures and shareholder activism at well-known companies is the norm, the overwhelming majority of director election and executive compensation proposals pass with majorities of 90% and upwards. The handful of proposals that fail […]
Oren Lida is an Analyst and Dimitri Zagoroff is a Senior Editor at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum.
Media reporting can make proxy season seem more dramatic than it is. While breathless coverage of board strife, impossibly high executive pay figures and shareholder activism at well-known companies is the norm, the overwhelming majority of director election and executive compensation proposals pass with majorities of 90% and upwards.
The handful of proposals that fail understandably draw headlines – yet many proposals opposed by a majority of shareholders fly under the radar. That’s because (with some notable exceptions) most reporting fails to acknowledge how multi-class share structures, which give certain shares typically held by founders and insiders more voting power than those held by institutional and retail investors, obscure investor sentiment.
Proxy voting is highly technical in and of itself, and its ultimate influence on how companies are run is even more complicated. So why does the impact of multi-class share structures matter? Because giving insiders and founders disproportionate voting power often serves to effectively silence ordinary shareholders, threatens the agency and objectivity of the board and removes a key safeguard against excessive pay, related party transactions, and other potential misuses of investor capital.
In this post, we look at how inequitable voting rights influenced 2024 AGM results at Shopify, and at the broader impact of multi-class share structures on the board and its role.
