I don't have the right to create a new subject, so I thought I'd try to post my question to this thread:
Some companies (facebook, alibaba, etc.) have a dual class structure so that the founder controls enough votes that he can control the board.
For example the way Zuckerberg has structured facebook he's not accountable to the board of directors (see article link below).
So theoretically he doesn't have to care about paying out dividends or the share price. Theoretically if the share price sinks or a public company refuses to pay out dividends, the shareholders can try to replace the board - I believe the ability to do this is supposed to be an integral part of the stock market. This is not the case in some dual class stock companies, and the founders have no accountability to the shareholders.
So why isn't the price of facebook 0 then? Why would anyone buy stock in a company when there is no way to force the management to share profits, in the form of dividends, if they choose to never do so?
Sure, facebook may be likely (emphasis on likely)to pay a dividend in the future, but there is no way for shareholders to force it to (unlike for companies with a single class of stock, who can get a new board of directors).
If you, as a shareholder, own a a company, shouldn't you be able to force management to pay out its excess cash as dividends to you. Otherwise what's the point of owning it? I understand that management will likely do so, but on the other hand it may not, and as the owner of a company shouldn't you have the right to make it happen?
I mean can you imagine the bank entering into a mortgage contract with a homeowner, where the homeowner is likely to pay off the bank, but the bank doesn't have any recourse if the homeowner decides they'd rather not? This seems to be something like the case with dual class shares. |
