The dual-class share structure outlined in SpaceX's IPO filing, which grants CEO Elon Musk outsized control, has revived one of Wall Street's oldest debates - corporate governance.
While such structures are hardly unusual in corporate America, particularly among founder-led companies, few issues are so fiercely criticized by governance watchdogs.
Supporters argue visionary founders should be insulated from short-term market pressures, while critics warn that concentrating power in the hands of insiders weakens accountability.
For many investors, Musk's track record of building companies and his enormous public following make the governance concerns feel like a price worth paying as long as returns follow.
Some others, however, have questioned whether Musk can devote sufficient time and focus to several of his high-profile ventures.
WHAT IS THE DUAL-CLASS SHARE STRUCTURE?
Simply put, shares are divided into two classes under this framework. One class gives its holders greater voting power than the other, and these high-vote shares are typically held by founders or insiders.
In SpaceX's case, Class B shares carry 10 votes per share, while Class A shares carry one vote each. Musk will own a majority of the Class B shares after the share sale, giving him significant control over shareholder decisions.
WHY DO CRITICS HATE IT?
Critics say "one share, one vote" is the cornerstone of shareholder democracy, and any corporate make-up that gives one class of investors more rights than others, even if they hold the same number of shares, concentrates power in the hands of a few.
"Over time, this founder-knows-best approach can entrench management and blindside executives to a need for change in strategy," according to the Council of Institutional Investors, a major investor group which has long fought against dual class shares.
DO MULTIPLE SHARE CLASSES IMPACT STOCK PERFORMANCE?
A 2024 study published in the Harvard Law School Forum on Corporate Governance showed that on average companies in the Russell 3000 index with dual or multi-class share structures outperformed those with a single share class, over five and 10-year periods.
However, a separate paper from the European Corporate Governance Institute found that the valuation premium enjoyed by dual-class firms tends to diminish over time, with such companies trading at a discount to their single-class peers roughly seven to nine years after their IPOs.
DO INVESTORS CARE?
"Most investors have thrown out the idea that voting rights are valuable anymore, which is unfortunate," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
Besides, for companies such as SpaceX that are built around a popular founder, investors may be even more willing to trade voting rights for exposure to the business.
"Some investors may view that as a serious governance trade-off, while others may decide it is the price of access to one of the few companies with SpaceX's scale and positioning," said Lukas Muehlbauer, IPOX research associate.
WHICH OTHER COMPANIES HAVE DUAL CLASS SHARES?
Google parent Alphabet, Meta Platforms, Palantir Technologies, Strategy and Berkshire Hathaway are among companies with two or more classes of shares.
