Ric Marshall is Executive Director of ESG Research at MSCI Inc. This post is based on his MSCI memorandum. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock (discussed on the Forum here), and The Perils of Small-Minority Controllers (discussed on the Forum here), both by Lucian Bebchuk and Kobi Kastiel, and the keynote presentation on The Lifecycle Theory of Dual-Class Structures.
Two companies, one highly disruptive business model, multiple big challenges looming. Few IPOs in recent memory have attracted more attention—or disappointed more decisively, initially—than the IPOs of ride-sharing groups Uber and Lyft. At the end of June 7, 2019, two months following its IPO, Lyft’s share price traded at 17.7% below its IPO price, while Uber’s ended that same day 1.9% lower. Could ESG considerations have played into investors’ thinking?
Both companies demonstrate striking similarities. Not only do they compete directly with each other, both are investing in autonomous vehicles. Both have large off-the-books workforces as their drivers are classified as independent contractors rather than employees. And both must protect their passengers—both physically and digitally given the amount of personal data they possess. All of these are major issues that have the potential to threaten their business models in the face of regulatory change or consumer backlash.
But one area where their paths have differed markedly, which might have an outsize importance to investors: their listed ownership structure, more specifically around the key question of ownership control alignment, or ownership control skew. [1] Why does this matter? In Uber’s case, investors’ level of influence over the company is commensurate with how many shares they own, while in Lyft’s, investors have virtually no influence, regardless of how many shares they own.
