Shopify is aiming to cement CEO Tobi Lütke’s control of the firm and splitting its stock after a rocky public-market run in recent months.

The proposals: At a June 7 virtual annual meeting, Shopify will seek shareholder approval to:

• Split its shares in 10. 
• Establish a new “founder share,” which effectively gives Lütke 40 per cent of the voting power within the company. The CEO already holds a near-supermajority of the firm’s Class B shares, which have 10 times the ballots of regular Class A stock. 

If the new structure is approved, the firm’s other mega-stakeholders are promising to make themselves more ordinary. John and Catherine Phillips, early angel investors, control just under a third of Class B shares. They’re pledging to convert those to the decimated Class A type if Lütke gets his golden share.

How it works: The change would increase Lütke’s personal control of the firm; as of the last annual general meeting in May 2021, he had 33.9 per cent of the voting power. It also means he can cash out some of his holdings without losing that significant say, since the founder share will make up for any stock he might sell. 

But the reinforced control comes with restrictions. The CEO will keep the golden share so long as he’s an executive, board member or consultant at Shopify, and as long as his family retains at least 30 per cent of the stock they currently hold. He also can’t pass it on, meaning the Lütke clan won’t be able to keep control of Shopify past his lifetime, like the Rogers family have done with their eponymous firm.

What it means for governance: The share restructuring brings Lütke’s control more inline with that of other tech founders like Meta’s Mark Zuckerberg and Alphabet’s Larry Page and Sergey Brin, who enjoy outsized voting power. “The thought is that dual-class founder shares help preserve the ‘guiding hand’ of the founder, allowing them to focus on the company’s long-term vision by insulating the company from the short-term mindset of the market,” Stephanie Bertels, director of the Centre for Corporate Governance and Sustainability at Simon Fraser University, told The Logic by email. Investors with an environmental, social and governance mindset, however, may reject the concentration of power, despite Lütke’s penchant for environmental and social stewardship. “As a general principle, good governance practice favours democratic control and generally frowns upon asymmetrical voting power,” said Bertels.

Jamie Bonham, director of corporate engagement at NEI Investments, which owns Shopify shares, agreed that the changes leave the e-commerce company’s governance with “a flawed structure,” but said the increased voting power for Class A shareholders—from about 49 per cent to nearly 60 per cent—could engender their support. “From the perspective of independent shareholders, it is an improvement and thus it might get traction.”

The market reaction: Shopify’s shares closed up more than two per cent on the New York Stock Exchange on Monday. The stock closed Friday at US$603.18, down nearly 66 per cent from its mid-November 2021 high.