What if public companies stay privately controlled? into copy

What if public companies stay privately controlled?


The animated chart shows initial public offerings that occurred since 2010; each dot representing a US market IPO. If the dot is below the one-share-one-vote line, then investors in that company have less control* over the company than the capital they provided; if the IPO is on the line, then investors have the same voting power as capital provided.


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*Control is measured as the voting power given per unit of capital provided. For example, if a company is on the one-share-one-vote line, an investor that provided 30% of the company’s total capital received from the IPO received 30% of the voting power. If a company is below the line, the same investor received less than 30% of the voting power. Control-skew calculations are based on the economic-capital exposure and voting-power figures reported in each company’s public Securities and Exchange Commission filings, as of the date of its initial public offering. Source: MSCI ESG Research LLC, Thomson Reuters Eikon

 

Companies going public have increasingly adopted control-skew mechanisms, such as dual-class share structures, which give founders outsize voting rights. In 2010, just 2% of all IPOs in the chart used such mechanisms, while 11% of all the IPOs we examined for the full 10-year period (2010 through 2019) had employed some sort of control-skew mechanism. Such mechanisms have the effect of maximizing founders’ control, while at the same time minimizing their economic-capital exposure. The opposite is true for minority public investors. Advocates of control-enhancing mechanisms cite the potential for greater long-term shareholder value creation, while opponents assert that control-skew mechanisms can misalign the interests of the companies’ minority shareholders and founders.


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