Analysis: It remains to be seen if the benefits of SpaceX's upcoming share structure outweigh concerns of managerial entrenchment, and the pursuit of selfish strategy
This month, SpaceX confidentially filed for an initial public offering (IPO). Upon completion, it would become the largest IPO in history, targeting a listing valuation of about $1.75 trillion, raising around $75 billion. Beyond the scale of the public listing and the level of money the company aims to raise, lies the issue of shareholder control and protection.
IPO filings for the company reveal plans to allow its CEO Elon Musk, alongside insiders, to maintain significant levels of control by being given Class B shares worth 10 votes each. Other public investors will only be given Class A shares, worth one vote per share owned.
Overall, this choice of structure (commonly referred to as dual-class structures) is not unusual. Over the past several decades, an increasing number of firms across major global economies seeking to go public have chosen to concentrate control among its founders, CEOs, families (in the case of family-owned firms), and other insiders whom often have longstanding links to the firm. This includes firms such as Alphabet, Meta, and Snap.
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Proponents of dual-class share structures argue that through concentration of voting power among founders and insiders, companies can preserve long-term strategies that may otherwise be challenged by ordinary shareholders, due to short-term costs involved. This is especially apparent in technology firms which often require costly, long-term investments in research and development, of which the benefits generated from such strategy are not immediately seen.
However, opponents of the share structure highlight the share structure's ability to limit the influence of ordinary shareholders, or challenge management. Without these abilities, management may become entrenched in the firm, emboldened to pursue strategy that ultimately benefits and protects themselves, at the cost of other shareholders and potentially the firm as a whole.
This has become a key source of tension for regulators across international stock exchanges, whom have cycled through restricting and allowing firms from offering dual-class shares upon IPO, to balance between protecting ordinary shareholders, and allowing firms to raise money while retaining control. Examples of this, include allowing for sunset provisions which limit dual-class share structures to specific time periods, alongside the capping of voting power (e.g. a maximum of 10 votes per share).
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In the case of SpaceX, it remains to be seen whether the benefits of its upcoming dual-class share structure outweigh concerns of managerial entrenchment, and the pursuit of selfish strategy. However, the firm’s emerging role in the US as a partner in aerospace, telecommunications, and artificial intelligence raises several questions regarding its governance practices.
During Elon Musk’s previous role in Donald Trump’s Department of Government Efficiency (DOGE), many government activities were scaled back, providing room for private companies such as SpaceX to fill in vacuums, particularly in areas such as aerospace.
Securing government contracts worth billions and operating in conjunction with government agencies such as NASA, the costs of self-interested strategy may then become much larger, potentially harming not just ordinary shareholders, but ordinary citizens as well. Within SpaceX, this role is continually expanding as well, with its ambitions to grow within the AI industry.
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With a vacuum appearing in a number of sectors in the US as a result of laissez-faire government policy, and the entangling of government, corporate, and societal interests across a greater range of economies, accountability shifts towards these private firms which play an increasingly larger role in the function of society.
However, if this vacuum is filled by an increasing number of companies like SpaceX which proclaim ambitious strategy and vision, who at the same time aim to insulate themselves from non-insiders, where does accountability ultimately reside if this concentrated voting power is misused? This question will continue to be asked, as the number of firms seeking IPO with dual-class share structures increases.
Furthermore, given that many of such firms are also aiming to become the most impactful within our rapidly changing, modern society (for better, or for worse), these questions must also be increasingly asked by regulators and policymakers. They must acknowledge this new reality in order to harness the benefits of the share structure for firms, while mitigating the larger potential harm that may follow suit through the form of appropriate regulation.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
