Prior to their first shareholder meetings as public companies, Airbnb Inc. and DoorDash Inc. due to their corporate governance structures and the rich pay days of top executives.
Influential proxy consulting firms Institutional Shareholder Services or ISS and Glass Lewis & Co. recommends shareholders withhold their voting rights from Airbnb ABNB,
Chairman and CEO Brian Chesky and DoorDash DASH,
President and CEO Tony Xu because of their compensation and the control they exercise over the companies they co-founded, as well as other corporate governance issues. Both companies were listed last year, and both executives received giant stock bonuses at the time of their first public offering.
In short, the corporate governance structures created by Chesky and Xu turned them into billionaires and gave them significant control over their companies for the foreseeable future, and shareholder watchdogs sound the alarm.
Xu holds more than 70% of the voting rights in DoorDash due to the dual-class share structure of the delivery platform provider and an agreement with co-founders Andy Fang and Stanley Tang that gives him voting rights over their shares. In addition, shareholders are set to vote on a mega-subsidy to Xu that could value IPO share subsidies worth $ 41
When a DoorDash spokeswoman was reached for comment, she said on Thursday: “The performance award is completely forward-looking and will only be paid if Tony and DoorDash meet a number of increasingly ambitious performance targets that significantly surpass the market and achieve a 5x return over the next seven years.”
Similarly, Glass Lewis noted that Airbnb’s $ 120 million reservation platform for Chesky rose to a potential value of $ 1.67 billion after the company’s IPO.
“The quantity in this price guarantees control, and shareholders should note that the company’s share price has exceeded expectations,” Glass Lewis said in a “controversy alert” Thursday. The ISS said in its proxy research report on Airbnb: “The CEO’s large front-loading capital price, designed to cover a 10-year period, is causing significant concern.”
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Glass Lewis also mentioned that Airbnb “has clearly revealed that this grant is intended to be Mr. Chesky’s only form of incentive compensation during the 10-year period of the award, in addition to a base salary of $ 1.00. ” But it also said that shareholders should “closely monitor” the wage schemes in the future.
In its proxy research report on DoorDash, ISS further said it opposes the election of all directors who have voted for provisions that give the company’s shareholders little power. However, because the company has a classified board structure, only Xu can be re-elected. Therefore, the ISS recommends that he no vote against him.
A vote against Xu is “justified in view of the Board’s failure to remove or object
to a reasonable sunset claim, the dual-class capital structure and the classified board structure, each of which adversely affects shareholders’ rights, ”ISS said in its report. Its recommendation comes after CtW Investment Group last month filed an exemption request announcing shareholders to vote against Xu for the same reasons.
“Given the growing competitive and regulatory risks to its business model, it is imperative that DoorDash shareholders use the voice they have to send a clear message to the company,” wrote Dieter Waizenegger, CEO of CtW, in the exception request letter. CtW works with trade union-supported pension funds, which are “significant” shareholders in the company, the letter states.
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DoorDash’s business model relies on using delivery workers, which it considers independent contractors instead of employees, a model that CtW says is “increasingly under fire” in the US and Europe.
CtW is under no illusion that it can make significant changes to DoorDash, at least for now.
“It is certainly not possible for us to win a vote on DoorDash that will undo the structure,” Richard Clayton, research director at CtW, told MarketWatch on Thursday. “But raising awareness of injustice and risks is something we can do.”
Pointing out the problems could lead to regulatory or regulatory changes, he said, mentioning that e.g. Companies with dual-class structures are now not eligible for listing in the S&P 500 and other major SPX indices,
Both Glass Lewis and the ISS also recommend shareholders withhold votes from Airbnb executives Kenneth Chenault and Angela Ahrendts, “given the board’s inability to remove, or subject to a reasonable sunset claim, the multi-class capital structure, the classified board and the large majority. voting requirements to adopt certain amendments to the governing documents, each of which adversely affects shareholders’ rights. “Chenault and Ahrendts were on the company’s board of directors before the IPO.
Both advisory firms also pointed out other issues that they said shareholders should be concerned about. They say DoorDash has not provided adequate disclosure about the board’s oversight of environmental and social risks, and Glass Lewis says that from 2022 it will recommend that shareholders withhold votes from the chairman of the committee responsible.
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DoorDash and Airbnb have also not provided adequate disclosure about their board diversity policies and considerations, Glass Lewis said.
Airbnb’s multi-class share structure, which gives Chesky and co-founders Nate Blecharczyk and Joe Gebbia 46.7% of the total voting rights, has a deadline. But the ISS said that “while the structure in several classes is exposed to a time-based sunset, the 20-year time frame is not considered reasonable. As such, withholding of votes is eligible for all directorial candidates. ”
The two San Francisco-based companies are both scheduled to hold their annual general meetings on June 22nd.
Airbnb had not returned a request for comment at the time of publication.
See: 5 things to know about DoorDash’s IPO
See: 5 things to know about Airbnb’s IPO