The company couldn’t have held its IPO in the UK—but that’s not such a bad thingby Stephen Martin / March 13, 2017 / Leave a comment
Snap, the parent company of messaging app Snapchat, caused a stir when it listed on the New York Stock Exchange on 2nd March, with shares jumping 50 per cent in value in the first two days. But the founders of Snapchat, Evan Spiegel and Bobby Murphy, have kept a firm grip on decision-making by offering only non-voting shares to investors in their initial public offering (IPO). In the UK, this is considered to be contrary to good corporate governance, which is based on the principle that all shareholders have an equal say relative to the number of shares they own.
This principle has been questioned. Martin Sorrell, the CEO of WPP, the world’s biggest advertising firm, defended Snap’s policy, claiming that companies with dominant shareholders take more risks and tend to perform better. “Perhaps surprisingly, corporate structures that seem to offend customary good corporate governance may deliver better long-term results,” he said. In the short term, shares in Snap have tumbled since the first few days.
Investors could come to regret ignoring the governance issues, too. Murphy and Spiegel will dominate every facet of the organisation and investors will not be able to vote on key decisions that will define the company’s future, like board appointments and remuneration issues. It was one thing for the founders to act as omnipotent leaders when Snap was a privately owned company, but now they are spending other people’s cash.