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

President Trump is open to extending the March 2019 deadline for raising tariffs on Chinese imports.

Peter Prince

2019-02-15 11:33:00 Friday ET

President Trump is open to extending the March 2019 deadline for raising tariffs on Chinese imports.

President Trump is open to extending the March 2019 deadline for raising tariffs on Chinese imports if both sides are close to mutual agreement. These bilat

+See More

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies.

Apple Boston

2019-11-07 14:36:00 Thursday ET

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies.

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies. World Trade Org

+See More

European Commission President Ursula von der Leyen now protects the European circular economy and green growth from 2020 to 2050.

Dan Rochefort

2019-12-22 08:30:00 Sunday ET

European Commission President Ursula von der Leyen now protects the European circular economy and green growth from 2020 to 2050.

European Commission President Ursula von der Leyen now protects the European circular economy and green growth from 2020 to 2050. The new circular economy r

+See More

William Easterly critiques several economic development policies and then indicates that bottom-up solutions often result in macro policy success in spite of nation states.

John Fourier

2023-05-07 10:27:00 Sunday ET

William Easterly critiques several economic development policies and then indicates that bottom-up solutions often result in macro policy success in spite of nation states.

William Easterly critiques several economic development policies and then indicates that bottom-up solutions often result in macro policy success in spite o

+See More

President Trump ramps up 25% tariffs on $200 billion Chinese imports soon after China backtracks on the Sino-U.S. trade agreement.

Rose Prince

2019-05-09 10:28:00 Thursday ET

President Trump ramps up 25% tariffs on $200 billion Chinese imports soon after China backtracks on the Sino-U.S. trade agreement.

President Trump ramps up 25% tariffs on $200 billion Chinese imports soon after China backtracks on the Sino-American trade agreement. U.S. trade envoy Robe

+See More

America seeks to advance the global energy dominance agenda by toppling Saudi Arabia as the top oil exporter by 2024.

Olivia London

2019-03-25 17:30:00 Monday ET

America seeks to advance the global energy dominance agenda by toppling Saudi Arabia as the top oil exporter by 2024.

America seeks to advance the global energy dominance agenda by toppling Saudi Arabia as the top oil exporter by 2024. The International Energy Agency (IEA)

+See More