Mark Pincus and the board of directors at Zynga may be playing a dangerous game with their investors.
The board of the largest maker of games played on Facebook last week approved three tiers of stock that give CEO Pincus 70 times more voting power than shares that will be sold during its planned initial public offering.
While this type of super-shares structure has been used before to give CEOs ten times the voting power of normal shares, what Zynga has done boarders on the creation of ‘super-duper’ shares. Granting the CEO such a huge voting advantage is unprecedented and is bound to have governance implications.
Perhaps the most obvious reason for the three-tiered stock structure was articulated by Greg Taxin, the former CEO of proxy advisory firm Glass Lewis, when he told Bloomberg last week that the use of multiple stock classes can dilute the influence of public investors. Taxin, however, also noted that, ‘In other industries, we see the collapse of these structures,’ so it can be argued that the board is ignoring historical risk patterns in favor of establishing a ‘super CEO’ who can carry nearly any vote.
Of course, what this says about Zynga board’s regard for governance depends on your viewpoint. Is it good for shareholders and the long-term growth of the company for the CEO to have so much voting power?
Taxin doesn’t seem convinced that it is good for shareholders. He told Bloomberg, ‘It’s only because the founders of these new internet companies believe they can do no wrong and everybody else is desperate to invest alongside them that they can get away with this.’
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