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

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........

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