The Lyft Inc. application is displayed on an Apple Inc. iPhone in this arranged photograph taken in New York. (Photographer: Gabby Jones/Bloomberg)

Lyft Unlikely to Get SEC Pushback on Plan for Two Share Classes

(Bloomberg) -- Lyft Inc. is the latest hot tech startup to inflame investor advocates by planning to have two share classes: one that gives corporate insiders almost total control of the company and another for everyone else.

The head of Lyft’s regulator seems less deterred.

Getting rid of dual share classes means “you would choke off some very good companies from coming to market,” Securities and Exchange Commission Chairman Jay Clayton said Thursday at a law conference in New Orleans hosted by Tulane University. Clayton didn’t name any specific firms.

In some ways it’s no surprise that he is prioritizing the benefits of unicorns going public. Boosting IPOs has been one of Clayton’s top goals, and he’s eased rules to encourage more firms to sell shares. Yet the former Wall Street deals lawyer has also said the SEC’s focus should be on protecting retail investors, a group that he affectionately calls “Mr. and Ms. 401K."

Groups such as the Council of Institutional Investors, which represents state pension funds, have made clear that they believe dual share classes are very bad for shareholders. In Lyft’s case, the ride-hailing companies’ founders would own Class B shares that entitle them to 20 votes per share. Class A holders would get one vote per share.

The company’s IPO plan sends the message “that the Lyft founders can govern the company as supreme monarchs in perpetuity,” CII Executive Director Ken Bertsch said in a March 2 statement.

Lyft is far from alone. Facebook Inc., Google-parent Alphabet Inc. and Snap Inc. all have multiple sets of shares.

SEC Commissioner Robert Jackson has said share classes that give holders more voting rights should eventually lapse and became ordinary stock. Such a system would ensure that retail investors aren’t permanently at a disadvantage to “corporate royalty,” he said in a February 2018 speech.

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