Shareholders at Shopify Inc. SHOP-T have voted in favor of giving chief executive officer Tobias Lutke a special “founder share” that entrenches his control of the company.
At an annual meeting held Tuesday, shareholders voted to give Mr. Lutke, his family and his affiliates 40 per cent of the total voting power at Shopify. As long as Mr. Lutke remains at the company in an official capacity, he will not be obliged to give up his non-transferable founder share — even if his equity stake is diluted to as low as 1.1 per cent, according to the arrangement.
Additionally, Shopify investors also voted on Tuesday to carry out a 10-for-one split of the company’s class A and class B shares. The company positioned the stock split as a way to make voting shares affordable for a broader segment of the population and to diversify its ownership base. Stock splits have been a trend across several other technology companies, from Amazon.com Inc to Google parent Alphabet Inc. announcing similar measures this year.
Over the past few weeks, three leading proxy advisory firms had warned their clients not to vote in favor of Shopify’s motion, stating that the proposal is against industry standards and would cause issues of board entrenchment. A special committee of the Ottawa-based e-commerce firm had recommended shareholders to vote in favor of the proposal, calling it a beneficial way to modernize the company’s governance structure.
Institutional Shareholder Services Inc. associates Shehrbano Khan and Nicholas Stiege called Shopify’s motion “inappropriate” in a memo to clients on May 24, stating that the now-approved arrangement would cause a ballooning effect for the disparity between voting power and equity interest at the company .
Separately, in a report last week, Egan-Jones Ratings Co. said Shopify’s new arrangement “is not in the best interests of the company and its shareholders.”
“We believe this proposal would give essentially practical control of the company at the expense of other non-family shareholders even if the legal definitions of such control are not met,” Egan-Jones told clients.
More to come.
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