On January 12, 2015, Stanford’s Rock Center for Corporate Governance hosted a panel discussion called “The Rise of Controlled Corporations.” Unfortunately, this is one program at the Rock Center that I missed.
With Alibaba’s recent IPO on NYSE (instead of Hong Kong or China), the “one-share, one-vote” corporate governance standard has once again been challenged.
Alibaba’s choice follows a trend by high-profile US tech companies, such as Google, Facebook, LinkedIn, and Zynga, in going public with dual-class share structures. The Internet allows such controlled corporations to scale up quickly, with relatively few employees or little capital.
Consider that Facebook has a market cap of $184B with about 6,000 employees. In contrast, a more traditional firm that does not rely so heavily, Alcoa has over 60,000 employees bit a market cap of less than $13B. Traditionally, companies went public in order to raise the money to build factories, hire employees, etc. When Facebook went public it was so that Mark Zuckerberg and early investors could cash out some of their stock, not in order to raise funds for expansion. Expansion could easily be paid out of retained earnings.
Institutional investors and their representatives, including CII, CalPERS, and ISS, have voiced opposition to dual-class structures. But some companies, including the New York Times, the Washington Post, and even Berkshire Hathaway, have long had dual-class share structures that conferred control to a concentrated set of owners. Stock pyramids and cross-ownership structures render a similar effect. Abroad, controlled family-owned businesses or holding groups are the norm. I would argue today’s controlled corporations built on the infrastructure of in Internet are different.
The panel discussed which corporate governance issues arise in tightly controlled corporations versus more traditional “one-share, one-vote” issuers and how (or even whether) we should regulate these types of controlled corporations. Did they settle anything? Maybe not, but you certainly walk away with a better understanding of some of the issues.
The panel for this evening event included:
Jack Jacobs, Senior Counsel at Sidley Austin LLP, former Justice of the Delaware Supreme Court, and former Vice Chancellor of the Delaware Court of Chancery
Tad J. Freese, Partner and Vice Chair of the Global Corporate Department, Latham & Watkins
Anne Sheehan, Director of Corporate Governance, CalSTRS
F. Daniel Siciliano, The Rock Center for Corporate Governance (moderator)