If you have read this blog post, you know that Proxy Filing is one of the most important documents to read before even looking at stock price or learning more about the business. Its the document that shows you character of the company and the people who run the corporation in many ways.
Now coming onto Snapchat’s parent company Snap, Inc. (NYSE:SNAP), there is a reason why the context on Proxy Filings is important. In case you don’t know, most companies whose securities (stocks) are listed on a stock exchange such as New York Stock Exchange have voting rights. Voting rights allow shareholders (who own stock of a company) to exercise their rights as a part owner in the affairs of the listed corporation. Snap like many listed companies has a multiple class voting structure – Class A, Class B and Class C. The listed security which participants like us in the market can trade is Class A with zero votes – yes you read that correctly. Through ownership of a combination of Class B (one vote) and mostly Class C (ten votes) stock, Evan Spiegel and co-founder Robert Murphy effectively control the company with about 97% of voting power.
Non-voting stock is not a big issue, many companies issue such stock to raise capital via secondary raises and investors who invest do have economic rights to the proceeds but no voting rights. The issue is that in Snap’s case, issuing only non-voting stock allows them to cleverly skirt SEC regulations regarding proxy statements and providing information statements to the public shareholders. In effect, it allows them to not publish a Proxy Statement at all, which contains some of the most important details regarding a company such as ownership and compensation. This is shady as they can do legal but shady transactions and change their compensation pretty much without informing public shareholders.
This is somewhat of a rare situation. Now, I have not scanned through all the listed companies in the world but public companies of this scale usually do not do this as it is an extremely investor unfriendly move. If you are long term investor, unless you know Speigel or Murphy personally there is no point in investing in the company as the company is structured very shadily. It is basically a speculative investment no matter what you think of their product, technology or founders. It is bizarre to me they were able to raise any capital during their IPO and think such shady securities should not really exist in the capital markets.