[roenxi]

Weeeeeell... it isn't a secret, that is true. And technically speaking there is no problem here.

But it is easy to imagine that this happened to be able to hoodwink someone with the "Zuckerburg only controls 10% of the shares!" style soundbites without being forced to point out that means control of the company.

Realistically this practice should probably be banned on the basis that Facebook could achieve a similar outcome with something like one class of shares and selling bonds to the public, or something. Allowing a "share" to break the one-share-one-vote principle is unnecessarily confusing and misleading.

Lawyers shouldn't be redefining words. These words are meant to mean something. Although this is unlikely to be a new practice, I think Berkshire had different classes of share.

[Dylan16807]

> But it is easy to imagine that this happened to be able to hoodwink someone with the "Zuckerburg only controls 10% of the shares!" style soundbites without being forced to point out that means control of the company.

Does that hoodwinking matter, though? If you're unsophisticated enough to be tricked by this, you have 0% voting power. And at best you expected "someone other than zuckerburg, I guess, but I didn't look into who" to have voting power, and that seems so vague that it being false doesn't hurt you.

[roenxi]

In principle, I have no argument.

In practice, it leaves open the question of why anyone felt the need for 2 classes of shares. Why have 1 class A and 9 class B, instead of 100 shares for the company owner and 9 on the market? One of those is much simpler to work with. Maybe there is just some tax loophole that is being exploited here, but it looks like someone is getting scammed.

Not the biggest crisis I've seen today, but something that should get tidied up.

[Dylan16807]

> Why have 1 class A and 9 class B, instead of 100 shares for the company owner and 9 on the market?

Because you want to sell more of the company without losing control. Changing that would be a lot more complicated than tidying up.

But consider a scenario where all shares have the same voting power, and class B shares have 100x the dividends and own 100x as many assets. With 100 class A and 9 class B.

In this scenario, the class A shares are much worse than class B shares. But the end result is the same: the founder can own 10% of the company value while having 90% of the votes.

Surely the founder isn't getting scammed here, despite their shares being so much weaker, right? And it would be strange to say the people with the superior class B shares are being scammed. But this is basically equivalent to having good class A and bad class B. So now what?

[matheusmoreira]

> If you're unsophisticated enough to be tricked by this, you have 0% voting power.

Doesn't mean that tricking people should be allowed.

[Dylan16807]

Not always, but tricking people is usually allowed. You have to have pretty specific harm before you get into fraud territory.

[yuliyp]

Having shares that have different rights is not really a new practice. For instance, it's what allows VCs to invest with more likelihood of recouping their investment, while still allowing for employees to get shares with a different payout structure. As long as these things are disclosed (and in Facebook's case they specifically call it out as a risk in the risks section of the annual report in a section titled "The dual class structure of our common stock and a voting agreement between certain stockholders have the effect of concentrating voting control with our CEO and certain other holders of our Class B common stock; this will limit or preclude your ability to influence corporate matters."

It's assumed that investors have a responsibility to read the information a company publishes for investors, so if someone were to invest blindly they'd only be hoodwinking themselves.

[wcunning]

Ford famously pioneered it over a hundred years ago to keep control in the Ford family, which is still true today, though the family is now spread out enough that they don’t necessarily vote as a block on all matters.

[specialist]

Andreessen participated in that "hoodwink", convincing investors to cede control.

> Realistically this practice should probably be banned...

Post Jobs, Larry and Serge were determined to not be ousted from their own creation. Others founders followed suit. And since returns were so good, investors played along.

Methinks that after Zuck and Neumann and others, investors have lost their appetite for being sidelined.

[easton]

Berkshire has different classes of share so that people could invest at something lower than $250k+ a share (Buffett didn't want to split the stock).