Becky Peterson, provided by
Published 8:30 am EDT, Sunday, March 24, 2019
Hollis Johnson/Business Insider
- Pinterest’s S-1, publicly filed on Friday, revealed a unique share structure.
- The company has dual-class shares, which give some shareholders, like founding CEO Ben Silbermann, greater voting powers than other investors.
- But the structure also gives Silbermann’s estate the ability to retain its extra voting superpowers for between 90 days and 540 days after his death.
Silicon Valley’s power players are already preparing for the grim spectre of mortality.
Pinterest’s S-1 paperwork, filed publicly Friday, disclosed an unusual stipulation that retains full voting rights for CEO Ben Silbermann’s shares in the company from 90 days to 540 days after his “death or permanent incapacity.”
That phrase is part of Pinterest’s description of its planned dual-class stock structure, which gives 20 votes per share to select Class B shareholders — which will likely include the founding team and some of the company’s earliest investors. When investors buy Pinterest’s stock after the IPO, they will buy Class A shares, which have just one vote per share.
The clause means that after Silbermann dies, whoever inherits his shares will retain his super-voting powers for a period of time.
Tom Holden, a securities lawyer with the firm Ropes & Gray, said it’s uncommon to see language like this in an S-1, and added that expanded rights such as super-voting shares are often requested by the founders directly.
“It’s typically driven by the founder’s desire to have meaningful influence on the vote post-IPO,” he said.
In the case of the death clause, Holden suspects Silbermann was motivated by the nuances of estate planning, rather than a posthumous power grab. It’s unlikely that Silbermann’s future beneficiaries could have a real impact on the company’s operations within 90 days, he says.
“It doesn’t strike me that he’s trying to gain something substantive,” Holden said.
While it’s rare, Silbermann is not the first CEO to seek such controls. Facebook founder and CEO Mark Zuckerberg’s famously extra-powerful voting shares, which give him total sway over corporate decisions despite owning a minority stake in the company, are slated to persist for three years after his death, at which point they would convert to normal shares.
Similarly, super-voting shares owned by Snapchat’s founders Evan Spiegel and Robert Murphy would keep their extra powers up to nine months after their deaths.
Dual class structures are common; death clauses are not
Dual-class structures aren’t often found in newly-public companies, but are becoming increasingly common at companies with prominent founders at the head, both inside and out of tech.
The clothing company Canada Goose, for example, which went public in 2017, also had a dual class structure. Zoom, which also filed its S-1 on Friday, also has a dual-class structure — to the benefit of founding CEO Eric S. Yuan, who owns 22% of the company.
Typically in companies with dual-class structures, founders and early investors own Class B stock, which can have anywhere from 10 to 100 times the number of votes-per-share as the Class A stock, the type issued to retail investors after the IPO.
In the case of Pinterest, the Class B stock has 20 votes to every one vote held by the Class A stock. Pinterest didn’t disclose what percent of the voting power will be held by Class B shareholders.
The way Pinterest is set up, Class B shareholders will lose their super-voting powers in 2026 if they have sold off more than half of their stake in the company. Those high-vote Class B shares will automatically convert into low-vote Class A shares seven years after the IPO, under those conditions.
Notably, if Silbermann were to sell more than 50% of his shares in Pinterest, he would be subject to the same provision — meaning that he, and his heirs, would lose the super-voting powers that come with his current stock.
Pinterest hasn’t disclosed what percentage of the company is owned by who, though those details will likely come out in an amended version of its S-1.
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