Shopify Inc. shareholders voted to solidify founder and CEO Tobi Lutke’s voting power for as long as he is at the company and ensure he, his family and affiliates will hold 40 per cent of the company’s voting power.
The approval received Tuesday at Shopify’s annual general meeting ushered in a new corporate governance structure to grant Lutke non-transferable founder shares.
The founder share will sunset if Lutke no longer serves as an executive officer, board member or consultant whose primary job is with the company or if Lutke, his immediate family and his affiliates no longer hold a number of class A and class B shares equal to at least 30 per cent of the class B shares they currently hold.
In the event of a sunset of the founder share, Lutke will also convert his remaining class B shares into class A shares.
At least one proxy advisory firm, which compiles reports for shareholders ahead of such votes, opposed Shopify’s proposal. Glass, Lewis & Co told clients last month the move limits shareholder rights and inadequately protects minority shareholder interests.
Shareholders also approved a 10-for-one split of the company’s class A and class B shares, which Shopify has positioned as a way to make voting shares more affordable to a broader segment of the population and diversify its ownership base.
To be approved, the share split had to garner the support of a two-thirds majority of shareholders and at least a majority of the votes cast by shareholders excluding Lutke and his associates and affiliates. Shopify did not immediately say what margin of approval it received for the two measures.
Under the new structure, Shopify director John Phillips will convert all class B shares held by Klister Credit Corp., a company the early investor owns with psychologist-wife Catherine Phillips, into class A shares.
As of March 31, Glass, Lewis & Co said Shopify had about 114.2 million class A subordinate voting shares and roughly 11.95 million class B multiple voting shares. Lutke owned 5,250 class A subordinate voting shares and 7.9 million class B shares, giving him about 33.8 per cent of Shopify’s voting power.
John and Catherine Phillips jointly hold 3.75 million class B shares, representing slightly more than 16 per cent of Shopify’s voting power, Glass, Lewis & Co. said.
The votes come after Shopify shares plunged from a 52-week high of $2,228.73 in November to a low of $402 in mid-May. The stock closed at $452.54 on Monday and was trading at $469.23 in late-morning trading after the votes were held.
In response to the stock drop, company executives, including Lutke, president Harley Finkelstein and vice-president of merchant services Kaz Nejatian tweeted they were purchasing shares as a sign of their confidence in the business.
Lutke posted that he alone placed a $10-million order for shares and reasoned that he made the purchase because “it’s time to build,” while Nejatian said he liquidated some of his family’s portfolio to make similar moves.
“When everyone else has sought reward from safety, we have sought reward from serving others and from taking risks,” he said in a note he posted to Twitter.
“And every year, we have gotten better and better at taking bigger risks and serving more people.”