Corporate governance experts and institutional investors hate it when companies give insiders extra votes.
As has the case at many startups that have gone public lately, insiders at Peloton will have shares that give them extra votes afterBut Peloton's insiders will get more votes than most — 20 for each of their shares. And, at least as things stand now, its CEO, John Foley, wouldn't be the number-one vote holder once Peloton is public.
In general, though, the super-voting stock held by insiders usually comes with 10 votes per share. The stock held by Foley and other Peloton insiders will come with twice as many votes per share. That would allow the holders of those shares to continue to control the company with as little as a 5% combined economic stake in the company — half that needed to retain control at a firm that had shares with 10 votes per share.
"Twenty is the new 10," said Glenn Davis, director of research at the Council of Institutional Investors."We're very discouraged by that." Peloton director Jon Callaghan controls a larger amount as the representative of True Ventures' stake in the company. Callaghan and True Ventures own 28 million Class B shares, or about 12% of the total. Meanwhile, Tiger Global Management, whose own representative on Peloton's board resigned earlier this month after he left Tiger, owns 47 million Class B shares, or about 20% of the outstanding number.
Peloton did throw one bone to potential investors, with regards to its dual-class structure — a sunset provision. The arrangement will go away in 10 years, when two-thirds of Class B shareholders vote to get rid of it, or when Class B shares only account for 1% of the total outstanding shares of company stock, whichever comes first.
But Peloton could renege on that sunset provision, Elson said. And even if it doesn't, things could happen at the company well before then that would make investors want to wrest control from Foley and other insiders.
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