NEW YORK — As Lyft prepares for its initial public offering (IPO), the ride-sharing startup is also gearing up for a debate over investor rights. Following in the footsteps of tech giants Alphabet and Facebook, Lyft’s co-founders are seeking a similar, dual-class ownership structure. But according to new research from Wei Jiang, Arthur F. Burns Professor of Free and Competitive Enterprise and a Chazen Senior Scholar at Columbia Business School, tenure voting offers a way for founders to maximize shareholder value, satisfy shareholders who want more voting power, and maintain control of the company in the long run.
In the paper, “Will Tenure Voting Give Corporate Managers Lifetime Tenure?,” Jiang and co-authors Paul Edelman and Randall Thomas of Vanderbilt University posit that tenure voting, which gives all investors equal access to voting power as long as they are willing to hold shares for the long-term, helps promote greater balance between managerial and shareholder rights.
The researchers generated a database documenting portfolio turnover rates by different categories of institutional investors. They used this data to inform a mathematical voting model of tenure voting to show how its adoption would affect control rights within a corporation over time.
Jiang and her co-authors found that corporate managers who retain at least 20-30 percent of the total number of company shares on a long-term basis will maintain control of the company—even in the face of a proxy battle. But if managers choose to sell their initial block of company stock over time and the majority of long-term ownership is held by institutional shareholders, their position is weakened in a proxy battle and institutions like the Institutional Shareholder Service (ISS) wield the real power.
The paper concludes that tenure voting represents a middle ground for corporate managers and investors, representing progress in terms of balancing the power dynamic of corporate ownership.
For more information, please read the related Chazen Institute research brief (PDF).
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About the Jerome A. Chazen Institute for Global Business
The Jerome A. Chazen Institute for Global Business is the interdisciplinary hub of global business knowledge at Columbia Business School. By injecting a global viewpoint into coursework, supporting research on global business, and sponsoring provocative forums where business leaders and policy-makers engage in vigorous debate, we pool the vast wealth of knowledge that exists within Columbia Business School, distill it for people who operate in the world’s marketplace, and provide a global network for lifelong learning.
About Wei Jiang
Wei Jiang is the Arthur F. Burns Professor of Free and Competitive Enterprise and a Chazen Senior School at Columbia Business School. She also serves as the Vice Dean for Curriculum and Instruction at Columbia Business School.
Professor Jiang is a leading scholar in corporate governance; in particular, she pioneered research in hedge fund activism. She has received numerous awards for research excellence, including the Smith-Breeden Distinguished Paper Prize from the Journal of Finance and the Michael J. Brennan Best Paper Award from the Review of Financial Studies, as well as the best paper prizes from the Western Finance Association, Chicago Quantitative Alliance, UK Inquire, the Q-Group, and the IRRC Institute. She is currently an associate editor at the Journal of Finance and served on the editorial boards of Review of Financial Studies. Previously, she was a Finance Department Editor at Management Science.
Jiang received her BA and MA in international economics from Fudan University (China), and PhD in economics from the University of Chicago in 2001, after which she joined Columbia Business School. She was an investment banking associate at Prudential Securities (Shanghai) before pursuing her PhD degree.