Opinion

Snap is a tyranny

Its stock comes with a catch: No voting rights

Snap went public on Thursday. Sort of.

The company — which gave us Snapchat, the messaging app that specializes in texts, pics, and quick videos that disappear after the reader has opened them — held an initial public offering (IPO) on Wednesday, giving anyone on the financial markets the chance to buy its stock for the first time.

They expected their shares to sell for $14 to $16 a pop. Instead, Snap's shares sold at $17 each, for a total market valuation of $24 billion.

But as popular as Snap was with its brand-new shareholders, their stock comes with a catch: No voting rights.

Generally speaking, there are two reasons why companies offer stock in IPOs and why people buy it. The first is to raise capital: When you buy a company's stock during an IPO, you're injecting money into the company so it can expand and create new jobs. In return, owning the stock entitles you to a regular dividend payment out of the company's profits.

The second reason is owning stock in the company entitles you to a vote in the company's governance: You elect the members of the corporate board — who then hire the CEO — and vote on major decisions about company strategy. And unlike political democracy, it's not one-person-one-vote; how many votes you get is determined by how many shares you own.

This structure is used in both publicly-traded companies and companies that remain privately owned. But the basic argument behind this "shareholder democracy" is that lots of people with an interest in the company voting on corporate governance will result in smarter business decisions than the centralized control of a single owner or a small cadre of entrepreneurs. Taking a company public with an IPO just doubles down on this logic.

Snap doesn't agree. Thanks to offering shares without voting rights, power will remain overwhelmingly in the hands of its two founders, Robert Murphy and Evan Spiegel — the latter of whom is also the CEO.

Needless to say, many investors and much of the financial world are not happy about this.

Interviews with Spiegel make it sound like he's been burned by Wall Street types in the past, and doesn't trust them. And he's not alone: Restricting shareholder voting rights to founders and sometimes a few key investors is a growing trend among Silicon Valley companies in particular, where the mythos of the visionary entrepreneur still holds a lot of cultural sway. Across all industries, eight of the globe's 20 biggest companies and about 30 percent of the value on the world's stock markets are not controlled by public shareholders. And "only two-thirds of the big European firms included in the FTSE Eurofirst 300 index operate a rule of one share, one vote," The Economist reported.

So what we have here is the classic dispute in political philosophy over whether democracy or dictatorship delivers better outcomes, just superimposed onto corporate governance instead.

Yet, ironically, both forms of governance are actually becoming unhealthy for many companies. The need for larger and larger payouts to placate shareholders is driving corporations to merge, sell off, and cannibalize themselves to increase profit margins. Payouts to shareholders are now a net drain on company finances and they're destroying jobs.

So maybe someone else should be put in charge of corporate governance? Someone with an interest in keeping the company profitable, but also in making sure it keeps investing in itself.

As it turns out, there is such a group of people: workers. And while giving workers votes in corporate decision-making is more or less unheard of in the U.S., Germany requires by law that as much as half of all corporate boards be made up of worker representatives. And its economy remains enormously successful.

Neither Murphy nor Spiegel nor the armies of Wall Street investors who want to wrest control of Snap away from them would be happy with that arrangement. But corporate socialism might work out pretty well for the rest of us.

Let the workers lead!

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