Shopify looks to protect CEO’s voting power with governance structure changes

Shopify is proposing changes to its governance structure to preserve founder and CEO Tobi Lutke's voting power,

Shopify Inc. is proposing changes to its governance structure to preserve founder and CEO Tobi Lutke’s voting power, while also proposing a 10-for-one split of its class A and class B shares.

Under the new plan announced Monday, the Ottawa-based e-commerce company will issue Lutke a non-transferable founder share that will have a variable number of votes that, when combined with his other holdings, will represent 40 per cent of the total voting power attached to all of the company’s outstanding shares.

However, 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.

The shakeup comes as Shopify’s stock has experienced a significant slump in recent months, after surging following the onset of the COVID-19 pandemic.

Yet Lutke, who started Shopify with an investment from father-in-law Bruce McKean in 2004, when he was unable to find e-commerce software for a snowboard business he was building, remains at the helm.

If Monday’s “unprecedented” proposal is approved, more control over the company could eventually be wrested away from Lutke and handed to common shareholders, said Richard Leblanc, a professor of governance, law and ethics at York University.

Shopify estimates that if the conversion were completed Monday the total voting power held by class A shareholders would increase to roughly 59 per cent from about 49 per cent.