> he has more than 65% of the overall share vote

So when WeWork responded with

-"The board is aware of it and has approved it"

they probably meant

-"Neuman is aware of it and has approved it" right ?

Don't think so. Corporate boards still go with one person, one vote, not percentage weighted.

Who do you think selects the directors?

Why? Everybody who bought those shares knew exactly what they were buying.

Well, one could argue the more complex the ownership structure is capable of being, the more opportunity for abuse arises.

For example, by saying he has "special" shares that grant him 10x the votes of "normal" shares, he can sell way more than 50% of the company and retain 100% control.

This means shareholders are 100% along for the ride, and get no say in how he runs the business.

I could see a strong argument for the SEC coming down hard and saying "Okay, enough is enough. 1 share, 1 vote."

If a shareholder doesn't want to invest in a company with multi-class shares or defense industry ties or tobacco or whatever, they can opt out.

You can use the same reasoning to justify a large variety of predatory tactics, and scams.

"Buyer beware" doesn't absolve a practice of being, at the very least, scummy.

To be predatory it has to be deceptive or complex in a way that leads people to misunderstand. This is not the case here. It is crystal clear that a non voting share gives the buyer no control over the company, and if he buyer accepts that then he should get no such control.

What's complex is the ownership structure of any company with multiple classes of shares, especially with different voting weightings.

Simple would be "1 share = 1 vote".

-----

What's deceptive is the conflict of interest he created for himself that makes it unclear whether or not he is actually fulfilling his fiduciary duty.

Clear and conflict-free would be renting from someone unrelated, and renting his building out to different company.

I was made more likely to invest in Facebook and Google because of the multi-share structures. I believe that having control and financial ownership separate concepts can be a good thing, provided those with control have a stronger/better vision than the aggregate of the investors.

This is not some underhanded, secret dealing. It's very much publicized. That makes it "not a scam" IMO.

I never said that multi-class shares are a scam. This is a straw man argument.

EDIT: To clarify, almost every scam involves the victim doing something of their own free will. Either they do not have all the information they need, or they do something based on trust which is then betrayed.

So saying scams are okay because people can just not fall for them is completely asinine.

In this case, you could argue that WeWork's shareholders have been "scammed" because they trusted that the CEO would act in WeWork's best interest, not his own. However, one could argue that he violated his fiduciary duty in renting office space for WeWork from himself at questionable rent prices.

The reason he was interest and able to do that, profitably, was that he actually owns a relatively low % of WeWork's stock. So he can use his 65% voting power to decide to do this, WeWork loses on the rent each month, and he basically profits by over 80% of WeWork's loss.

He's in a position where if he steals $100 from WeWork, then his shares drop by less than $20. Because he has majority control, the board can't do anything about it unless they or the SEC decides he's gone too far and is into fraud territory.

What enables his insane margins there is the 10x vote weighting he gave his own shares. If it were 1 vote = 1 share then he'd steal $100 and profit $35. Still incentive, but not TRIPLE the incentive.

EDIT: To further clarify what I mean by "stealing" is this... let's say the rent would usually be $1000 a month for the space. If he's charging WeWork $1100 a month, he's stealing $100 a month from his own company.

I'm not opposed to the use of multi-class shares in private companies, but for public companies I think that they should be phased out in line with the proposal from the SEC commissioner's speech. The self-dealing in the OP is another matter entirely -- and potentially worthy of a shareholder lawsuit for breach of fiduciary duty.

There are two sides to the coin, a good founder/CEO that has a controlling interest in the company can make long term strategic plans without fear of repercussions from short sighted investors.

But you can be a good founder/CEO and have a controlling interest in the company without using multi-class shares if you simply retain the majority of shares.

Problems such as the one mentioned in this article start occurring when multi-class share schemes start allowing the founder to effectively sell off most of the company while still retaining total control.

Read the SEC commissioner's speech that I linked, seriously. He doesn't propose banning them entirely, just phasing them out over a period of time. Clearly there is a flipside to carte blanche founder control when the CEO/Founder is underperforming yet can't be removed (e.g. Evan Spiegel).

Do you think Mark Zuckerberg's children should retain majority control of Facebook after he dies?

Solution: Disallow inheritance of company shares.

Non-voting shares especially illustrate at least one of two things:

1. How divorced the financial markets are from the real economy.

2. How broken all our voting systems are.

Choose your narrative.

Both.

2008 didn't substantively re-tether the financial markets to the real economy.

Governance mechanisms are beginning to crack.

How about (active) investors? Why wouldn't they shy away from that kind of deal?

Too much VC money chasing too few deals. They didn't have a choice, he could have just gotten the money elsewhere.

Can someone introduce me to these desperate venture capitalists making poorly researched deals?

Make a company with a 47 billion dollar valuation and those "desperate" venture capitalists will introduce themselves.

Revenues and/or profit not required.

There is a competitive element when lots of VC money is chasing hot investments — the company has leverage to get investors to accept unfavorable terms. It is an aspect of our bubbly financial climate, like the boom in "covenant-lite" loans.

Also, there is a Ponzi-like aspect to VC funding in general, where incentives favor ever-rising valuations rather than the cultivation of sustainable, profitable businesses.

Yes, this will be really good to do.

It’d give even fewer incentives to take a company public.

Unnecessary, no one is being duped into investing in a business in which they have no say. If they deem it's worth the additional agency risk, then they should be able to afford it, if not, they and others will learn going forward.

But it still perpetuates a class system whereby having money and influence yields (potentially) more money and influence. Main Street investors who will have no say at scale should not be excluded from participating in the wealth creation.

Certainly this is not a natural or easy problem, it requires a values analysis of our goals and principles. But if we truly want the market to evaluate a company, we must ultimately allow that market to change the fate of a company. The dual class shares prevent that, which I agree should be listed differently or restricted.

For example, if dual class shares were always subject to a confidence vote by the other shares once per 5 years, this is fine. Or you say that after 20 years the dual class must be dissolved. Allow the use for initial listing, but not forever. I think the author of the linked speech painted a very good picture of this.