Founders Without Limits: Dual-Class Stock and the Premium-Tier of the London Stock Exchange

The US has recently seen a surge in the use of ‘dual-class stock’ or ‘weighted voting rights’ (WVR) by publicly-listed companies in the technology sphere. Google, Facebook and Snap, amongst others, have adopted WVR-structure where the founders own unlisted shares to which enhanced voting rights are attached, while public shareholders only hold inferior-voting shares. This can enable founders to diversify their wealth and generate equity finance without losing control. Founders can retain control only holding a minority of the equity, and take long-term decisions largely insulated from the whims of the public markets. Founders without limits. In the UK, WVR-structure is proscribed on the premium-tier, the London Stock Exchange’s most prestigious listing-tier. With a dearth of large tech-companies listing in the UK, and a plethora of acquisitions of UK tech-companies by foreign acquirors, the premium-tier prohibition of WVR-structure could be throttling the UK’s tech-industry. In this thesis, a theoretical and evidentiary approach is taken to the analysis of WVR-structure, one of the most significant topics in corporate governance today. It will be shown that a WVR-tradeoff operates, and, in certain circumstances, particularly in the context of long-term orientated, high-growth tech-companies, the structure’s benefits can outweigh the detriments to public shareholders. It will also be shown that the existing empirical evidence is not indicative of WVR-firms harming public shareholders. The market adequately protects itself from the perceived risks by imposing discounts on WVR-firms. If the prohibition of WVR-firms from the premium-tier stems from a fear that public shareholders will be harmed, given that the market prices-in its risk, the prohibition is not justified by the evidence. In fact, the level of discounts imposed on WVR-firms by the market is unwarranted by stock returns and operating performance. It is contended that if WVR-structure were to be permitted on the premium-tier, it would be prudent to implement judicious public shareholder protections, which will moderate the risks associated with the structure, and reduce the cost of capital for WVR-firms. High costs of capital could deter issuers from listing even if WVR-firms were permitted on the premium-tier. Crucially, any measures must tread a fine line between protecting public shareholders, and ensuring that restrictions are not so severe that they undermine the benefits of WVR-structure and cause founders to continue to eschew the premium-tier. A balanced protection package is proposed that provides a policy-driven roadmap toward the premium-tier finally embracing founders without limits.

Name dc:type.qualificationname

Doctor of Philosophy (PhD)

Level dc:type.qualificationlevel

Doctoral

Grantor dc:publisher.institution

University of Cambridge

Year dc:date.issued

2020

Author dc:creator

• Reddy, Bobby

Advisor dc:contributor.advisor

• Cheffins, Brian

• Corporate Governance
• Dual-Class Stock
• Capital Markets
• One Share One Vote
• Voting Rights
• London Stock Exchange
• Listing Rules
• Sunset Clauses
• Big Tech
• Minority Shareholder Protections

Licence

• https://www.repository.cam.ac.uk/bitstreams/8516c5c4-79a5-46ef-a89a-6b4a52dfaede/download
• https://www.rioxx.net/licenses/all-rights-reserved/

Language dc:language

en

Author Identifier

0000-0002-6519-3160

OAI identifier oai:identifier

oai:www.repository.cam.ac.uk:1810/305024