SpaceX’s supervoting shares put a decades-old governance debate back in play

Buffett and Alphabet's founders wielded similar supervoting power to fund decade-long bets that paid off, while many examples show entrenchment of failure.

The recent high-profile IPO of SpaceX, which famously utilizes dual-class shares to give Elon Musk nearly 85% control, has reignited debate over dual-class shares themselves, and whether they hurt or help shareholders.

Some of the most revered and successful business builders have dual-class share structures at their companies, from Michael Dell at Dell to Warren Buffett at Berkshire Hathaway to Sergey Brin and Larry Page at Alphabet; yet to say that dual-class shares are unloved within so-called good governance circles, would be an understatement.

Few governance structures elicit such scorn from governance theorists. For many theorist critics and proxy advisory firms, the principle of “one share, one vote” is treated as a holy grail, a moral imperative that must be forced on every company regardless of context, industry, or leadership caliber. A veritable cottage industry exists of governance experts critical of dual-class shares, but one would be hard pressed to find many defenders, much less enthusiastic supporters, of dual-class structures.

But away from the mindless, mechanical checklists of proxy rating firms Glass Lewis and ISS, this reflexive reflex collides with the messy reality of business building and actual leadership, not to mention genuine business performance. In fact, we would argue that much of the crusade against dual-class shares is built on a foundation of ideological impulses and misguided theoretical dogma that completely fails to account for the outsized impact of exceptional individuals and the genuine financial results of the enterprise such governance influencers should hope to improve. So what exactly do investors and CEOs seem to understand about dual-class shares that governance theorists miss?

The Original Sin of Governista Criticism: The Misappropriation of Agency Theory

Many academic proponents of one share, one vote anchor their intellectual framework around The Modern Corporation and Private Property, the 1932 classic by Adolf Berle and Gardiner Means, to argue that the separation of economic ownership from voting control is the original sin of governance, as well as Michael Jensen and William Meckling’s famous agency theory, developed in 1976. But in reality, it is the self-appointed governistas themselves who need to return to school to relearn what the foundational thinkers of the corporate governance movement actually said.

The prevailing argument against dual-class shares claims that over time, a “wedge” develops between a controller’s voting control and their actual economic exposure. Theorists argue that if a controller gradually sells down their economic interest—say, from 51% to 25%—while maintaining super-voting control, they become misaligned with regular shareholders, and they are inevitably incentivized to squander corporate resources.

Yet, what critics conveniently forget is that Berle and Means did not simply declare that “separation is bad.” They specifically diagnosed that separation was dangerous because it was caused by diffuse, highly fragmented ownership. Their nightmare was the “Managerial Corporation“—a company where the stock is split among millions of powerless retail shareholders, creating a massive power vacuum. Into this vacuum steps a hired-gun executive who owns zero stock and runs the company as an unchecked personal fiefdom.

In fact, there is a strong argument to be made that a dual-class structure with a controlling shareholder is the exact cure for the Berle-Means problem. In a firm with a dominant controller, the voting base is heavily concentrated. There is no power vacuum for a rogue, hired manager to exploit. By consolidating voting control in the hands of the controller, the company guarantees that management is held accountable by a definitive, central authority. The controller acts as the ultimate steward, completely eliminating the risk of the managerial drift about which Berle and Means and Jensen and Meckling warned.

Moreover, in practice, most controllers are not less aligned based on whether they hold a 51%, 45% or 15% economic interest, even if academic critics hoist the one share, one vote principle on a pedestal. Even at a reduced percentage of economic ownership, controllers generally remain the single largest individual shareholder by a massive margin. Their legacy, their reputation, and the overwhelming bulk of their personal net worth remain inextricably tethered to the long-term success of the enterprise. Despite mathematical models to the contrary, in practice, no controller is less incentivized for success merely because their economic ownership fell from 51% to 45%. They have too much soul in the game, not just skin in the game.

Furthermore, these critics fail to ask, why might a controller’s economic interest decrease over time? There are often compelling reasons, which have nothing to do with lack of engagement in their own company. For example, it is entirely natural—and expected—for a successful controller to eventually fund other life priorities, such as philanthropy. Giving away wealth is not only a noble and commendable goal; it is exactly what society demands: for a successful controlling shareholder to eventually direct their wealth toward curing diseases, endowing universities, or combating poverty. Yet, the rigid formulas of proxy advisors create a perverse, socially destructive incentive: hoard your wealth like an oligarch to maintain your good governance rating, or give it away and risk losing your company. To penalize visionary business builders for their philanthropy, threatening to strip them of the very companies they built simply because they chose to donate their wealth, defies all logic and common sense.

The Fallacy of the Sunset Clause: Putting an Expiration Date on Demonstrated Success

This panic over the “wedge” between voting control and economic ownership leads directly to the critics’ favorite blunt instrument: the mandatory time-based sunset. Prominent governance theorists demand that dual-class structures automatically evaporate after seemingly arbitrary thresholds with seven, 10, or 15 years frequently bandied about as the optimal sunset clause duration: not only can the theorists not agree to agree with their evidence-free doctrines on the ideal expiration period, but the same theorists even recklessly contract themselves without apology.

Of course, controlling shareholders are not cartons of milk stamped with expiration dates. There is no automatic, immutable rule that a visionary controller magically loses their touch exactly 120 months after ringing the opening bell at the stock exchange, and little data to suggest that controllers lose their touch so quickly.

Even we ourselves have been vocal in our criticism of instances where controlling shareholders clearly overstayed their welcome – more on that later. But to forcibly take their jobs from all controllers prematurely simply to follow some rigid sunset script is a terrible loss for the very shareholders the governistas claim to protect. Imagine stripping Warren Buffett of his control at Berkshire Hathaway in 1975 just because a 10-year sunset clause dictated it was time for a change. In fact, in evaluating the 10 companies with dual-class shares that have demonstrated the strongest performance over the past two decades, over half of them have controllers who have stayed past 20 years, and all of those controllers have performed better after their initial 10 years than during their first 10 years.

Good governance advocates should be in the business of encouraging long-term value creation, not clearing out the dairy aisle every seven days, and perhaps it is the critics themselves who have outstayed their sell-by date.

Judgment over Checklists

Although we have previously published articles showcasing the long-term outperformance of companies with dual-class shares; at the same time, lest we fall into the same one-size-fits-all trap of ‘one share, one vote’ advocates, we readily acknowledge that dual-class shares are not the right solution for all companies, or even most companies. Corporate governance solutions rarely come in the form of universal, infallible prescriptions.

The optimal share structure is entirely situational—heavily dependent on a company’s maturity, its competitive environment, and above all, the demonstrated caliber of its leadership. Simply put, it depends. While dual-class shares are the perfect engine for certain visionary builders, they are absolutely the wrong choice for others, and in some instances, they can be downright disastrous.

And indeed, if one evaluates the performance of individual companies with dual-class share structures, the data does not represent an unbroken, linear monolith of outperformance as much as it resembles a barbell.

On one end, you have some of the greatest wealth-creation engines in modern capitalism. On the other end, you have spectacular, even infamous, tales of value destruction. The true task for investors and boards is not to blindly ban dual-class shares or to cheerlead for them, but to develop the judgment to discern the characteristics of the companies that outperform versus those that do not.

The Blueprint of Dual-Class Outperformers

When dual-class structures generate sustained market-beating returns, they almost always share distinct characteristics, including, but by no means limited to:

• Highly Engaged Controllers With Proven Track Record of Success: Simply put, if it ain’t broke, don’t fix it. There is perhaps nothing more patently absurd in modern corporate governance than a box-checking proxy adviser recommending against a wildly outperforming enterprise just to satisfy a theoretical checklist. Results speak louder than any checklist or formula.
• A Proven Track Record of Efficient Capital Allocation: An ethos of long-term value creation is embedded in the DNA of the best dual-class companies. Unlike virtually every peer, Berkshire Hathaway under Warren Buffett has never paid a dividend, with Berkshire’s dual-class share structure enabling Buffett to substantively ignore occasional sniping from speculators. Over time, the reinvestment of retained earnings has proven to be 30x more financially accretive for shareholders than if Berkshire had simply paid out regular dividends as its peers did.
• Long-Term Orientation Over Short-Term Profiteering or Financial Engineering: The best controllers are enterprise builders, not financial engineers. The quickest way to artificially boost a company’s stock price is to slash R&D, gut capex, and initiate massive share buybacks, often with deleterious long-term consequences. Responsible controllers use their dual-class shield to protect the sanctity of the R&D budget, ensuring that actual innovation and long-term investment always take precedence over short term profiteering. For example, for years, Wall Street analysts relentlessly pressured Alphabet to abandon its “Other Bets” division, demanding the company slash funding to “science projects” like AI, DeepMind and Waymo to artificially inflate margins. Shielded by their dual-class structure, the founders ignored the pressure and sustained a decade-long capital commitment to technology R&D, which did not pay off for years but which now positions them at the forefront of the global AI arms race.
• Meritocratic Succession: A critical juncture separating good cases from bad cases can be the generational transition. Successful succession cases are where an accomplished, long-serving controller passes control to a descendant who has put in the grueling hours to master the industry with a demonstrated track record (as seen from Ralph Roberts to Brian Roberts at Comcast). Or, the family retains voting control but empowers a world-class professional management team to run daily operations without meddling, as seen at Hyatt or McCormick & Co. For example, at Greif, the controlling family has empowered the widely admired CEO, Ole Rosgaard, to execute an ambitious long-term transformation plan free of interference.
• Certain Industries Requiring Long-Term CapEx Cycles: Certain industries are characterized by massive, multi-year CapEx cycles, requiring heavy investment. AI today stands out as one prominent example; whether it is pouring billions into the logistics of next-generation silicon fabrication, navigating the supply constraints of high-bandwidth memory, or funding the massive buildout of neocloud infrastructure, the costs of building out compute capacity years into the future can be staggering from both a time and cost perspective.

The Red Flags of Dual-Class Underperformers

Conversely, when dual-class structures turn toxic, flashing warning signs include glaringly obvious failures of character and board oversight:

• The Twilight Entrenchment: Dual-class shares become indisputably destructive when an aging founder slips into infirmity but stubbornly refuses to relinquish control. The agonizing legal circus surrounding Sumner Redstone’s final years at Paramount/Viacom is a sobering cautionary tale.
• The Corporate Piggy Bank: The structure fails when the controller views the corporate treasury as a personal checking account, siphoning company assets to fund vanity projects. For example, former Hollinger International CEO Conrad Black dissolved the boundary between corporate assets and personal playthings to the point that he was indicted for fraud.
• Unearned Entitlement and the Meddling Heirs: When control passes to descendants who lack meaningful experience but possess a staggering degree of unearned confidence, dual-class shares start to fail. When these ill-prepared heirs begin constantly interfering with professional management, the premium associated with the founder’s original genius quickly turns into a massive nepotism discount.
• Destructive Infighting: When control share blocs fracture amidst ugly family infighting and fissures, operational paralysis and value destruction often ensues. A legendary example is the near collapse of the Gucci empire in the 1980s and 90s. Decades of bitter litigation, backstabbing, and infighting between the founder’s grandchildren nearly bankrupted the company and ultimately forced the family to surrender control entirely, famously culminating in the headline-grabbing murder of Maurizio Gucci by his disgruntled ex-wife.
• The Hubris of ‘Diworsification’: Dual-class shares can turn toxic when controllers misdirect capital away from core businesses into unrelated, glamorous passion projects where they have little expertise/background, and which have little operational synergies with the existing business.

These cases where dual-class shares have gone awry are often cited by good governance advocates as justification for sunsetting dual-class shares across the board. But just as dual-class shares are no panacea for success, it is likewise unfair to treat them as a universal scapegoat for corporate failure. If one is to be intellectually honest about corporate disasters, the most catastrophic corporate collapses and frauds of our time—Enron, WorldCom, Lehman Brothers, Silicon Valley Bank, First Republic, FTX, and Theranos—were almost entirely single-class or private structures. A “one share, one vote” mandate did not save them from egregious misconduct and ruin. 

The Art, Not Science, of Leadership

Ultimately, the hostility toward dual-class shares reflects a broader cultural shift in how many good governance advocates view corporate leadership. In this age of self-directed work teams, empowered management, and activist boards, great business builders and successful controlling shareholders remind people that bold individuals are still needed as leaders.

All over the globe, whether in distant seaports, capitals, mega-cities, villages, town squares, or central parks, prominent monuments to various individuals from history are featured. Rarely are these tributes to a proxy advisor review committee or a management task force armed with checklists in hand. Rather, they are a celebration of courageous, idiosyncratic, and sometimes even difficult individuals who rose above the crowd to lead, leaving track records of success in their wake.

Corporate governance solutions rarely take the form of universal mandates. The proxy advisors want a world governed by rigid mathematical formulas because auditing a checklist is easy. Evaluating human character, industry dynamics, track records of success and failure, and the capacity for visionary leadership is hard. But it is exactly that hard work of judgment which is vital. When it comes to dual-class shares, it is time for the critics to step out of the theoretical vacuum and look at the real-world scoreboards.

The renowned Harvard business historian Albert Chandler’s Pulitzer Prize-winning treatise The Visible Hand was celebrated for challenging economists’ religious worship of the “invisible hand of the market” to show that management judgment was often left out of equations.

The evidence-free governance theorists dangerously ignore the value of wisdom from actual experience beyond misleading abstract mathematical equations which neglect the genuine impact of leaders.  As philosopher Immanuel Kant warned, “Experience without theory is blind, but theory without experience is mere intellectual play.” Shareholder wealth is too important to delegate to the computer games of intellectual play. 

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This story was originally featured on Fortune.com