It’s still the Tobi Lütke show at Shopify.
Shopify shareholders have voted in favour of giving CEO Tobi Lütke a 40 percent voting stake after the changes to the governance structure were proposed in April.
The vote was held Tuesday at Shopify’s annual shareholder’s meeting, and essentially entrenches Lütke’s control of the company through a special “founder share.”
The 40 percent voting stake gives Lütke, his family and his affiliates, 40 percent of the total voting power as long as he remains at the company in an official capacity. Should Lütke step away from the company, the founder share would have a sunset clause; the founder share is not transferable. However, even if the CEO’s equity stake is diluted to as low as 1.1 percent, he would not be obliged to give up the voting power as long as he remains with Shopify.
At the meeting, shareholders also voted to conduct a 10-for-one split of Shopify’s class A and class B shares. The move was positioned as a way to make share ownership more accessible to all investors.
In recent weeks, proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. had opposed the governance changes proposal, warning their clients against voting in favour.
A May 20 filing argued that the plan carries “inadequate protection” for the interests of minority shareholders and limits their rights. “Ultimately, while we acknowledge the board’s concerns around the approaching sunset of the CEO’s effective controlling voting stake, we are not persuaded that the proposed arrangement is the correct solution,” Glass Lewis wrote.
When the change was proposed in April, it was noted by Robert Ashe, Shopify’s lead independent director, that a special committee of independent directors reviewed the proposal and determined that the founder share and 10-to-one split would together enhance Shopify’s strategic flexibility and ability to pursue value-enhancing organic and external opportunities.
“As we look ahead, the board undertook a careful review of Shopify’s governance structure to ensure the company is best positioned to capitalize on the massive opportunities for continued growth and value creation,” Ashe said.
During a May 5 conference call regarding Shopify’s first quarter 2022 results, Lütke stated that the changes were something the company’s board had been looking at for a while. He argued that Shopify’s board felt the changes represent a better governance structure for the future.
Shopify President Harley Finkelstein also highlighted Lütke’s “proven track record” on the conference call, arguing that the founder share makes sense given his ability to make good decisions in fast-moving environments.
The Q1 2022 results saw Shopify’s revenue growth continue to slow, as the pandemic forces that have driven the rise of e-commerce wane. While the company bought Deliverr to bolster its fulfillment network, Shopify’s year-over-year revenue growth slowed in comparison to 2021 even with an increase of about 21 percent.
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