There were two high profile public markets events last month that connect both sides of the Atlantic; the flotation of Lyft in the US, the ride hailing “unicorn” company, and what was termed the “Dunkerton putsch” at Superdry plc, the UK public company that sells clothing under the globally known “Superdry” label. If you look carefully both have a common thread – which is around founder governance and how investors and founders alike need to consider issues that may arise within founder led businesses.
To recap, Lyft floated last month at $72/shares valuing the business at $24bn (the shares have since slipped to $62 as of the beginning of May). One of the aspects of the IPO that was picked up by market commentators (both in the US and the UK alike) was the fact that the founders, John Zimmer and Logan Green, have retained almost 50 per cent of the votes but hold only 5 per cent of the shares under a share structure that gives them 20 votes a share. This is against the context of their open letter where they set out their vision of the future – not just of Lyft as a ride hailing platform but of taking on the far greater challenge of redesigning cities for the 21st century.
In the meantime in the UK, we’ve had an example of our own founder led business actively using their controlling rights where a difference of view on strategy arose between the founder (who stepped down as a director in April last year) and the board. Julian Dunkerton successfully won his campaign to be voted back onto the board of Superdry – by a margin of 51.15 per cent to 48.85 per cent (with Julian Dunkerton and his co-founder James Holder voting 29 per cent of those votes). Shortly after the vote the CEO, chairman, CFO and chair of the remuneration committee resigned immediately, with four non-executives following, alongside the resignation of the joint corporate brokers.
There is a key dynamic at play here that these two examples highlight – and it’s around control. In the current climate of shareholder activism, there seems there is a sub-set developing – with the rise of founder activism. The factors contributing to this are high valuations, relatively low levels of free float on IPO and the founder centricity of the new tech-unicorns coming to market. When businesses are running well, management and shareholders are aligned but when share values fall or differences of view on strategic direction (or even grander plans of reforming cities) arise, is the public company environment, and the current legislation and controls that exist, the right forum and tools by which this should play out – both for investors and founders?
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, May 2019