Shopify shareholders approve new ownership structure giving founder more power

Shopify Inc. shareholders voted to consolidate Founder and CEO Tobi Lutke’s voting power while he’s at the company and ensure that he, his family and affiliates will own 40% of the company’s voting rights. ‘company.

The approval received Tuesday at the Ottawa e-commerce company’s annual general meeting ushered in a new corporate governance structure to grant Lutke non-transferable founder shares.

The Founder’s Stock will expire if Lutke is no longer an executive officer, board member, or consultant whose primary employment is with the company or if Lutke, his immediate family and affiliates no longer hold a number of class A and class B shares equal to at least 30% of the class B shares they currently hold.

In the event that the Founder Share is extinguished, Lutke will also convert its remaining Class B Shares into Class A Shares.

The main opposing shareholders

At least one proxy advisory firm, which compiles reports for shareholders ahead of those votes, opposed Shopify’s proposal. Glass, Lewis & Co told clients last month that the move limited shareholder rights and inadequately protected the interests of minority shareholders.

” [The move] certainly consolidates a lot of power in the founder and you might say, at the expense of minority shareholders,” said Richard Powers, associate professor at the Rotman School of Management in Toronto, in an interview.

He sees the proposal as a way to give Lutke his due for founding a “spectacularly successful” company that dates back to 2004, when he received an investment from his father-in-law Bruce McKean because he didn’t. couldn’t find e-commerce software for a snowboard business he was building.

However, Powers pointed out that there have been instances where giving so much power to a founder or his family has caused problems.

Last year, for example, Edward Rogers, son of founder Ted Rogers, was able to replace five board members despite objections from other Rogers Communications Inc. directors, including his mother and sisters, because he controlled 97.5% of the Class A business. shares. The feud ended in court, with Edward Rogers winning.

“These things can explode and there’s very little investors can do when you have the founder-controller,” Powers said.

Stock split also approved

Shopify shareholders also approved a 10-to-1 split of the company’s Class A and Class B stock on Tuesday, which Shopify has positioned as a way to make voting stock more affordable for a broader segment of people. population and diversify its ownership base.

To be approved, the stock split had to have the support of a two-thirds majority of shareholders and at least a majority of the votes cast by shareholders excluding Lutke and its associates and affiliates. Shopify did not immediately say how much approval margin it received for the two metrics.

Under the new structure, Shopify director John Phillips will convert all Class B shares held by Klister Credit Corp., a company the first investor owns with his psychologist wife Catherine Phillips, into Class A shares.

As of March 31, Glass, Lewis & Co said Shopify owned approximately 114.2 million Class A subordinate voting shares and approximately 11.95 million Class B multiple voting shares. Lutke owned 5,250 Class A subordinate voting shares and 7.9 million Class B shares, giving him approximately 33.8% of Shopify’s voting rights.

John and Catherine Phillips jointly own 3.75 million Class B shares, which represents just over 16% of Shopify’s voting power, Glass, Lewis & Co said.

The stock has fallen sharply this year

The votes come after Shopify shares plunged from a 52-week high of $2,228.73 in November to a low of $402 in mid-May. The stock closed at $452.54 on Monday and was trading at $467.75 at noon after the votes were held.

In response to the share decline, company executives including Lutke, chairman Harley Finkelstein and vice president of merchant services Kaz Nejatian tweeted that they were buying shares as a sign of confidence in the company.

Lutke said he placed a $10 million stock order on his own and felt he made the purchase because “it’s time to build,” while Nejatian said he had liquidated part of his family’s portfolio to make similar moves.

“When everyone sought the reward of safety, we sought the reward of serving others and taking risks,” he said in a note he posted on Twitter.

“And each year we have become better and better able to take greater risks and serve more people. »

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