In the landscape of publicly traded companies, “super-shares” – special classes of stock that grant disproportionately higher voting rights to certain stakeholders, often founders or CEOs – have become a contentious topic. While these shares are designed to secure control for company leadership, they fundamentally undermine the principles of shareholder democracy and the fiduciary responsibility that executives owe to their investors. Allowing CEOs to own super-shares erodes accountability, creates conflicts of interest, and jeopardizes the long-term health of companies.
Here’s why the practice of issuing super-shares to CEOs should end.
1. Undermining Shareholder Democracy
The bedrock of public markets is the idea of shareholder democracy: one share, one vote. This principle ensures that all investors, from individual shareholders to institutional players, have a proportional voice in the company’s decisions. Super-shares, however, disrupt this balance by granting CEOs voting rights that vastly exceed their financial stake.
For example, some CEOs wield voting power over decisions despite holding as little as 5-10% of a company’s equity, leaving ordinary shareholders effectively voiceless. This asymmetry creates a system where CEOs are accountable only to themselves, circumventing the checks and balances meant to protect all investors. Public companies exist because they seek funding from the public; it’s only fair that those providing the capital have a say in how their money is managed.
2. The Risk of Entrenched Leadership
Super-shares often insulate CEOs from meaningful challenges to their authority, even when their performance is subpar. While stability can sometimes be beneficial, entrenching leadership creates significant risks, especially when the CEO’s vision diverges from the company’s best interests. Without the pressure of potential ousting by a vote, CEOs may adopt hubristic strategies, prioritize personal agendas, or resist adapting to market changes.
Take the case of companies that maintain poor performance under super-share-controlled CEOs. Ordinary shareholders have little recourse, as their diluted voting rights are insufficient to influence board elections or strategic direction. This lack of accountability often results in declining shareholder value and stifled innovation – the very outcomes super-shares are meant to prevent.
3. Misalignment of Interests
Public companies are stewards of investor capital, and CEOs are expected to act in ways that maximize shareholder value. Super-shares, however, create a misalignment between the CEO’s interests and those of the general investor base. A CEO with outsized voting rights but a small personal equity stake has less to lose financially when the company underperforms. This structure incentivizes risk-taking and decision-making that might benefit the CEO’s vision or legacy at the expense of broader shareholder value.
Additionally, super-shares can shield CEOs from repercussions for poor governance, mismanagement, or unethical behavior. The power imbalance discourages meaningful dialogue between executives and shareholders, fostering an environment where dissenting voices are ignored, and transparency takes a back seat.
4. Threats to Long-Term Growth
Proponents of super-shares argue that they allow CEOs to focus on long-term goals without worrying about short-term shareholder pressures. While this rationale might seem compelling, it often doesn’t hold up in practice. Concentrating power in the hands of one individual or a small group can lead to tunnel vision, with CEOs doubling down on flawed strategies or resisting necessary course corrections.
Companies like Google and Facebook have touted the benefits of super-shares, but for every successful case, there are cautionary tales like WeWork. Its co-founder and CEO Adam Neumann used his super-shares to maintain absolute control, pursuing reckless expansion and fostering a toxic corporate culture. The result? A failed IPO and billions of dollars in lost shareholder value.
Long-term growth thrives on diverse perspectives and the ability to pivot when market realities demand it. Super-shares stifle this adaptability by centralizing authority and suppressing alternative viewpoints.
5. Damaging Public Trust
The growing prevalence of super-shares sends a troubling message to the investing public: that their voices don’t matter. This erosion of trust can discourage participation in public markets, especially from retail investors who already face significant disadvantages compared to institutional players. Public companies rely on the confidence of their investors; sacrificing fairness in governance for the convenience of CEOs undermines this relationship.
Moreover, the practice of granting super-shares contributes to broader inequality in corporate power structures. It amplifies the influence of an elite few while marginalizing the collective interests of the many – a dynamic that runs counter to the ideals of fairness and inclusivity in modern capitalism.
A Call for Reform
To restore balance and accountability in corporate governance, regulatory bodies and institutional investors must push for reform. Banning or severely limiting the use of super-shares in public companies would go a long way toward ensuring that CEOs remain answerable to the investors who enable their companies’ success.
Some steps that could be taken include:
• Mandating equal voting rights: Public companies should adhere to a “one share, one vote” policy to ensure all investors have proportional influence.
• Sunset provisions: For companies that choose to issue super-shares, these structures should automatically expire after a set number of years, transferring voting rights back to ordinary shareholders.
• Stronger investor activism: Institutional investors should use their influence to demand governance structures that prioritize fairness and accountability.
Conclusion
Super-shares might seem like a practical tool for visionary CEOs, but they ultimately create more problems than they solve. In the public market ecosystem, accountability and equitable governance are non-negotiable. Allowing CEOs to hold super-shares undermines these principles, to the detriment of shareholders, companies, and the broader economy.
The public markets exist to provide opportunities for everyone – not to entrench the power of a privileged few. It’s time to end the era of super-shares and ensure that all shareholders have an equal voice in shaping the future of the companies they invest in.