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".

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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.