Dual-Class Share Structures in Silicon Valley: Facebook, Inc.

Abstract

In most public corporations, shareholders own voting and cash flow rights in proportion to their investments. Dual-class share structures disrupt this proportionality. In corporations with dual-class share structures, voting and cash flow rights vary by type of share, and owners of smaller proportions may exercise voting power beyond their ownership stake. Concerns about disproportionate control are well documented in the academic literature on dual-class share structures. Nevertheless, this structure is becoming the “new normal” for technology companies in Silicon Valley. Since Google adopted the model in 2004, more than 27 Internet and technology companies — including Facebook, the largest Internet IPO in history — have gone public with dual shares. In this paper, we explore the traditional concerns about dual-class share structures in the new context of technology companies. We examine Facebook’s share structure in particular because of the company’s status in Silicon Valley and relevance as an example of corporate governance for other technology companies.