The Social Benefits of Control
Multiclass share structures have exploded in popularity over the past twenty years since Google went public with one in 2004. This uptick has occurred despite profound concerns over the threats such structures can pose to good governance. Multiclass structures create uneven shareholder voting rights, granting insiders voting power that exceeds their economic stake in the […]
Emilie Aguirre is an Associate Professor of Law and Gabriela Nagle Alverio is a Research Assistant at Duke University School of Law. This post is based on their article, forthcoming in the Duke Law Journal.
Multiclass share structures have exploded in popularity over the past twenty years since Google went public with one in 2004. This uptick has occurred despite profound concerns over the threats such structures can pose to good governance. Multiclass structures create uneven shareholder voting rights, granting insiders voting power that exceeds their economic stake in the firm. As a result, insiders generally maintain firm control while still getting to raise money on public markets.
Because multiclass structures insulate insiders from voting accountability, they increase the risk of self-dealing at the expense of outside shareholders. This self-dealing may be monetary—allowing insiders to amass personal fortunes—or it may be idiosyncratic—allowing them to gain power, control political agendas, or simply pursue pathways they personally value. For example, Mark Zuckerberg may keep his controlling stake in Meta not just to get rich, but also to pursue his personal vision for the company, gain power, shape political agendas on privacy and artificial intelligence, or any other number of personal reasons. The discourse around multiclass structures has focused largely on whether these arrangements, which allow insiders to extract private benefits of control, represent the value-enhancing products of private bargaining, or anti-democratic threats to shareholder value.
