Says who? I'd much rather have long-viewed leaders running the company than a horde of outsiders looking to maximize short term gain and flip their positions. This seems like great news for long term investors.
Says the study I cited, which compared historical shareholder returns for companies with stock voting arrangements like Google's to companies having one class of stock that each has one vote.
I skimmed it, it seems a bit suspect, holding up as evidence that four relatively recent tech IPOs have dropped since their debut, and the original research was conducted by what sounds like a shareholder advocacy group. Zynga, Facebook, and Groupon didn't drop because of the share structure, and it's disingenuous to suggest that that was a probable reason.
I've seen the damage that focus on short term share price wreaks on companies in the long run - it's paralyzing, as they're forced to focus on the wrong things. Activist shareholders seem to focus on short term returns. Not being subject to that, and being able to focus on long term initiatives seems very beneficial for long term shareholder value as long as you have a good leader.
But that good leader caveat is a big one. Multiple share classes might be correlated with having a bad leader.
The study itself looked at 114 companies in the S&P 1500 (not a typo). The majority of them were consumer discretionary and industrials, not tech.
One thing the study didn't make clear was what its control was. It seemed like they were measuring returns relative to the S&P 1500 as a whole, but this introduces a lot of conflating factors. The study also found that controlled companies with a single-class structure (eg. WalMart, where there's only a single class of shares but the Walton family owns >50% of them) performed better than both multi-class and non-controlled companies, across all time periods. I can't see any rational reason other than random chance that this would be the case, and I would be skeptical of any study with a sample size of 114 non-randomly-chosen entities.
Yeah, when dealing with a few instances, it's hard to say if it's just random variation. The summary he pointed to called out the 4 tech companies mentioned as evidence, I didn't look to see if they were emphasized in the source. Thanks for summarizing what you read.
