Lyft seeks to go public with a dual-class stock ownership structure that allows the co-founders to retain significant influence.

Amy Hamilton

2019-03-11 10:32:00 Mon ET

Lyft seeks to go public with a dual-class stock ownership structure that allows the co-founders to retain significant influence over the rideshare tech unicorn. Within the dual-class structure, Class A shares follow the one-share-one-vote rule for new investors, whereas, Class B shares empower the co-founders John Zimmer and Logan Green and their executive managers to have 20 votes per share. The co-founders may end up owning more than 27% of equity stakes with near-majority control. This dual-class stock ownership structure has become prevalent among U.S. public corporations such as CBS, Comcast, Facebook, Ford, Google, News Corp, Nike, Snap, and Viacom etc. The co-founders keep significant influence over most matters that require shareholder approval, such as director nominations and elections and major corporate transactions from M&A deals and capital investment projects to R&D expenditures and other asset sales.

Harvard law professor Lucian Bebchuk criticizes the dual-class capital structure. The average costs of a lifetime lock on control tend to be especially large when the co-founders are young at the time of the IPO. The costs of inferior leadership can substantially increase when the co-founders cannot address dynamic changes in the business environment. This concern further aggravates when the dual-class structure enables a transfer of founder control to an heir who might be unfit to lead the company. Many dual-class structures allow controllers to reduce their fraction of equity capital over time without relinquishing control, and controllers often do so to diversify their stock portfolios to fund other investment projects.

When the wedge between the interests of controllers and public minority investors grows over time, the agency costs of a dual-class structure are likely to increase. Corporate controllers with a thin fraction of equity capital have perverse incentives to keep an inefficient dual-class structure. The reason is that the controllers would capture only a fraction of corporate efficiency gains (which would be shared by all shareholders), but would fully bear the costs of forgoing private benefits of control that arise from the dual-class structure.

Bebchuk proposes a *sunset provision* that stipulates the eventual expiration of dual-class structures after a specific period of time such as 10 years or 15 years. This provision empowers co-founders to retain their lock on corporate control with minimal short-term market pressure in the early-IPO stage of their entrepreneurial efforts; meanwhile, the dual-class structure should eventually converge toward the more efficient first-class structure.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

Business leaders inspire teams to reach heights of both innovation and profitability with great corporate purpose.

Apple Boston

2020-08-26 10:33:00 Wednesday ET

Business leaders inspire teams to reach heights of both innovation and profitability with great corporate purpose.

Through purposeful leadership, senior managers inspire teams to reach heights of both innovation and profitability with great brand identity and customer lo

+See More

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Daphne Basel

2026-02-14 11:26:00 Saturday ET

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Our AYA fun podcasts deep-dive into the current global trends, topics, and issues in macro finance, political economy, public policy, strategic management,

+See More

Volcker, Greenspan, Bernanke, and Yellen contribute to a Wall Street Journal op-ed on monetary policy independence.

Olivia London

2019-09-23 12:25:00 Monday ET

Volcker, Greenspan, Bernanke, and Yellen contribute to a Wall Street Journal op-ed on monetary policy independence.

Volcker, Greenspan, Bernanke, and Yellen contribute to a Wall Street Journal op-ed on monetary policy independence. These former Federal Reserve chiefs unit

+See More

Apple becomes the first company to hit $1 trillion stock market valuation.

Becky Berkman

2018-08-01 11:43:00 Wednesday ET

Apple becomes the first company to hit $1 trillion stock market valuation.

Apple becomes the first company to hit $1 trillion stock market valuation. The tech titan sells about the same number of smart phones or 41 million iPhones

+See More

The world now faces an economic inequality crisis with few policy options.

Daisy Harvey

2018-01-04 07:36:00 Thursday ET

The world now faces an economic inequality crisis with few policy options.

The world now faces an economic inequality crisis with few policy options. Some recent U.S. Federal Reserve data suggest that both income and wealth inequal

+See More

Higher public debt levels, interest rate hikes, and subpar Chinese economic growth rates are the major risks to the world economy.

Daphne Basel

2019-01-23 11:32:00 Wednesday ET

Higher public debt levels, interest rate hikes, and subpar Chinese economic growth rates are the major risks to the world economy.

Higher public debt levels, global interest rate hikes, and subpar Chinese economic growth rates are the major risks to the world economy from 2019 to 2020.

+See More