Shopify releases shareholder vote tally on proposal to give CEO key voting rights

Shopify sign

A vote to grant Shopify chief executive Tobi Lütke key voting power passed by a slim margin, the company revealed.

The Ottawa e-commerce giant announced Wednesday that 53.7 per cent of shareholders, excluding Lütke, voted Tuesday in favour of a plan that gave him, his family and affiliates 40 per cent of the company's voting power under a new corporate governance structure, subject to conditions.

Some 46.3 per cent of shareholders, excluding Lütke and his affiliates, voted against the proposal to give him a founder share. Including Lütke, the plan received support from nearly 72.4 per cent of the votes cast by the company's class A and class B shareholders.

“It's not nothing (to have) 46 per cent against you,” said Daniel Waeger, Canada Research Chair in corporate governance at Wilfrid Laurier University.

“It shows that there is unease.”

The proposal required a two-thirds majority of the votes cast by shareholders voting together as a single class and a majority of the votes cast by class A and class B shareholders, excluding Lütke and his associates and affiliates.

Receiving less than 85 per cent support through a shareholder vote is a rarity and often considered a sign of reputational damage, said Waeger.

Most votes pass with support in the 90 per cent range, he added. For example, Shopify shareholders also voted 99.6 per cent in favour of a 10-for-one split of the company's class A and class B shares on Tuesday.

Advisory firms opposed plan

The lack of support Lütke's share received stemmed in part from several proxy advisory firms, which compile reports for shareholders ahead of such votes. Glass, Lewis & Co. did not support the plan and told clients last month the move limits shareholder rights and inadequately protects minority shareholder interests.

Institutional Shareholder Services, California Public Employees' Retirement System and Egan-Jones Rating Co. reportedly also opposed the plan.

While the level of support for the founder share wasn't overwhelming, Patric Besner said it shouldn't be seen as a disappointment.

"If you ask people in two years, probably nobody will remember the numbers."

“If you have 50 (per cent) plus one, you're in business,” said the vice-president of the Institute for Governance of Private and Public Organizations in Montreal.

“If you ask people in two years, probably nobody will remember the numbers.”

The opposition Shopify's plan garnered was typical of dual class-share situations, which he often sees stress out investors.

“They can imagine all kinds of scenarios of what the founder can do, but sometimes it is just a misunderstanding of the ability of the founders because their heart and soul is in the business and ... it's unlikely that they shoot themselves in the foot and destroy the company,” he said.

Lütke started Shopify in 2004, when he received an investment from his father-in-law Bruce McKean after being unable to find e-commerce software for a snowboard business he was building.

Amid a broad market sell-off that has particularly hit the tech sector, the price of Shopify's stock has sunk more than 70 per cent since its late 2021 peak of $2,228.73. The stock was trading at $491.13 on the Toronto Stock Exchange by the end of the day.

Sunset clause

Lütke's new founder share will sunset if he no longer serves as an executive officer, board member or consultant whose primary job is with the company or if Lütke, 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, Lütke will also convert his remaining class B shares into class A shares.

Dual-class shares like Shopify sought are common in business, especially within the technology sector, said Waeger, though many are unlike Lütke's because they are structured to be passed down to family.

But Waeger said, “any concentration of power has risks.”

“There's nobody who will really be able to challenge him after this vote, unless you can really get everybody else against (Lütke) because he controls 40 per cent of the voting power.”