Stitch Fix IPO Offers Voting Rights Compromise for Investors

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By Andrea Vittorio

Stitch Fix Inc.’s planned initial public offering includes a corporate governance compromise sought by institutional investors concerned about voting rights.

The online personal-shopping service, like many other founder-led firms, is giving the class of shares held by its chief executive and early backers 10 times as many votes as the stock being sold to the public, according to an Oct. 19 filing with the Securities and Exchange Commission.

But unlike other recent examples of this trend, the extra voting power at Stitch Fix comes with an expiration date of 10 years.

“While we would prefer that Stitch Fix go public with a one-share, one-vote structure, it is encouraging that the company seems set to include a time-based sunset provision,” the Council of Institutional Investors’ executive director Ken Bertsch told Bloomberg Law. Still, Bertsch said “a shorter sunset would be better.”

A spokeswoman for Stitch Fix said she couldn’t comment since the company is in the IPO quiet period required by the SEC.

Multiple-class stock structures with unequal voting rights have become especially popular among founder-controlled technology companies such as Alphabet Inc.’s Google, Facebook Inc., and Snap Inc. Companies say it lets executives focus on long-term goals rather than short-term market pressures.

CII and big investors such as BlackRock Inc., State Street Global Advisors, and Vanguard Group that have come out against such share structures say they make companies less accountable to them. Their advocacy on the issue has helped persuade major index providers to shun companies that give public shareholders little to no voting power. That’s set up a clash with stock exchanges looking to woo listings by loosening rules on multiple share classes.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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