Zynga Restructures Voting Rights

Zynga Inc. (ZNGA), famous for online game FarmVille, as well as its multi-class stock, announced a reversal of its voting archetype this week. In a rare move, founder Mark Pincus, who wielded all the Class C 70-1 voting rights and some of the Class B 7-1 rights, will convert all outstanding shares to one-vote, therein diluting his voting power from 70% to just under 7% while maintaining the same equity investment of $226 M. Just as Pincus converted to a system that many large institutional investors and pension funds have long advocated, Xiaomi— the Chinese smartphone giant—is going public in the opposite direction, in what is forecast to be the world’s largest IPO since 2014 ($100 B). They will be taking full advantage of the Hong Kong Stock Exchange’s allowance of the dual-class listing.

While conflicting research see-saws between whether dual-class companies financially outperform the more common single-class companies, those employing the dual- (or multi-) class voting structure are the ones that attract the brunt of criticism. Concerns over perceived high-profile corporate governance disconnects and management malfeasance have served to amplify the negative connotation of this structure. Zynga’s stock edged higher by 3% following the press release and otherwise has been hovering between $3 and $5 for nearly five years— down from its high of $14.70 three months post-IPO in early 2012.

Today, approximately 19% of Russell 3000 companies exercise dual-class voting rights, compared to 15% across the S&P 500 and S&P 100 alike. With the likes of Accenture, Charter Communications and Facebook, dual-class S&P 100 companies represent around $3 trillion of market capitalization, and as an equal-weighted index, gained 24% since the start of 2017.