Opinion | How Tech Kings Keep Their Power

In a dual-class stock structure, a company issues shares to some shareholders that give them more voting rights, and sometimes other powers. Most simply, the general public gets shares with less voting power, and sometimes with none at all (Snap made this famous). With perpetual dual-class stock, founders and their families, and perhaps other key executives, get shares with voting power that gives them control over a company forever.

Various versions of dual-class stocks have been around for a long time. The founders of the Ford Motor Company used them to protect their long-term vision against investor short-termism. It’s also been employed by family-owned media giants, like The New York Times Company, Viacom and News Corp, which arguably have mission-driven businesses.

But tech has taken the use of the dual-class stock organization to new heights. More than 50 percent of tech companies use it, and often from their very beginning as start-ups.

Founders have always been the golden children of Silicon Valley, despite their occasional tantrums. Protecting them has been a paramount concern, even if most venture capitalists say off the record that they hate giving total control over to them. But accepting dual-class structure is often the price of getting in on the next big thing.

It’s easy to see the wisdom in this arrangement. Ideas need time to germinate and grow at the start of an innovative enterprise. And unpopular decisions by chief executives, made with the long term in mind, may need to be protected from interference from activist shareholders, who may be too focused on short-term performance.

Some academic research touts the benefits of dual-class stocks — although just as many studies show the drawbacks over time. Those include lower stock returns, higher executive compensation, more kooky acquisitions and, of course, management that never pays the price for bad calls or behavior.

Here’s the problem with tech companies using dual-class stock schemes: They can work well until they do not.