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Comment by djent | Hacker News Reader

Can someone explain why someone would want to own Class-C shares? I did some google searches but did not come up with much information. It seems strange to sell shares of a company where you don't actually have any say in the company you own part of.

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As a practical matter, voting rights are, by and large, pretty worthless. Even famous activist investors with very deep pockets (Carl Icahn, for instance) are usually limited to causing just enough trouble to get management to make some "go away" changes. Plus, management works hard to put in place measures to entrench themselves: anti-takeover defenses, requiring super-majorities for certain changes (often mergers and buyouts), etc. A lot of these moves were undertaken by management of companies in the 1980s in response to a wave of so-called "hostile takeovers" in the 70s and 80s.

An interesting example is Alphabet/Google. Their class C shares (which have no votes) are trading at $691 right now. Class A shares (which have one vote) are trading at $705, which is 2% higher. That seems like a small difference, considering you're giving up any kind of voting rights. What if management starts to perform poorly?

Well, guess what? Insiders (and only insiders) have class B, which have 10 votes each, so you're not going to have much luck as an activist shareholder mounting a fight against that.

It basically represents a bet that a steady hand on the tiller is better than having the company run by whoever is the darling of whoever's happens to own a big chunk of shares.

It's not an unreasonable view. American public companies have generally become pretty short-sighted, and financial traders are positively myopic. (A friend of mine works for a "medium-term" hedge fund, which he says means they hold shares from hours to days.) If you think a company is better off with a serious long-term focus and a stable power structure, then you're better off betting on something where random stock purchasers don't have control.

Historically, I think this is more common in European family-controlled business empires. But it makes some sense here. Look at how well Amazon, Apple, and Facebook have done with CEOs who have a long-term focus. I'd be happier betting on Bezos, Jobs, or Zuckerberg than J Random CEO, who is much more concerned about hitting quarterly numbers than in maximizing impact on a multi-decade scale.

> But it makes some sense here. Look at how well Amazon, Apple, and Facebook have done

or Zynga http://www.thedailybeast.com/articles/2011/12/14/zynga-s-ipo...

I think one important difference is that Zynga was always essentially an exploitative company. Amazon and Apple clearly deliver customer value; I'd argue that Facebook and Google do as well. All of them are building multi-decade relationships with their users.

Zynga, on the other hand, was the unholy child of an MLM scheme and a slot machine, a supposed games company that provides very little fun and quite a lot of addiction. So it's not clear to me that anybody there benefits from a long-term orientation.

Non-dividend stock is frequently purchased with one goal in mind - sell it later at (hopefully) higher value.

You're right in questioning the practice - the vote multiples and various share classes bring opacity to otherwise transparent concept of equity investing. Does the board want CEO to have 10x the votes? Issue him 10x the shares.

If you really want to have a say at Facebook or Google, the best way to do that is to work there, not through shareholder votes.

Profit?

They would give you all the economic benefits and likely trade at a discount

I understand that a share gives you a right to ownership in the company, but it's still strange to consider what the benefits are of owning a share in a company that likely won't pay a dividend in the foreseeable future and for which you have no recourse through corporate governance over the direction of the company.

I'm sure that class C stock will be correlated to class A stock but this sort of sounds like a security who's price is dictated by my ability to find a greater fool to purchase it in the future.

Or, you know, if it continues to increase in value, then the fool hypothesis a backup.

Economically, they're identical. If Mark can get value out of his stock, so can you.

Thinking that dividends are the only way to realize benefits is short-sighted.

> it's still strange to consider what the benefits are of owning a share in a company that likely won't pay a dividend in the foreseeable future and for which you have no recourse through corporate governance over the direction of the company

Isn't this true anytime you buy stock for a company where one person owns >50%? You know you can't influence anything with your vote; you're just buying a fraction of the future dividends.

> I'm sure that class C stock will be correlated to class A stock but this sort of sounds like a security who's price is dictated by my ability to find a greater fool to purchase it in the future.

For almost all companies, most of the stock's expected value derives from future scenarios where the company pays out dividends like normal (even if they aren't paying any currently). The expected value derived from the possibility of liquidating the assets and returning all money to the shareholders is nonzero but very small, simply because the chance of this happening is small. So this greater-fool critique would apply to any stock that isn't paying out dividends in the near term, not just those for which there is no voting control.

In finance theory, as long as a company is able to grow at a rate higher than the rate at which you could reinvest your dividends, you prefer not to receive a dividend. More simply, the idea is that the money staying in the company will grow more quickly than if it's outside of the company so long as the company is doing well.

Like a lot of financial theory, I think this is partly true. However, in my view, one of the side benefits of companies giving dividends is that it acts as a sort of long-term "anchor" to the stock's instrinsic value: the amount the company's stock is actually worth, which is usually wildly different from what it's worth on the stock market.

Let's say through careful analysis I find a company I think to be greatly undervalued in the stock market. I buy a bunch of shares. If they don't pay a dividend, I'm just hoping that eventually the market will "notice" the discrepancy and the price will go up, but I bear a lot of risk because the opposite could happen. But, if that company pays dividends, and those dividends continue to grow, I am getting a real return which is not based on the vagaries of the market.

If you own Class-C shares, I believe you can still sue companies when its trying to implode because of reasons, since you still in theory own parts of the company.

Not quite sure what else to expect though. I guess it's a store of value so you can use it to avoid holding cash?

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