How to Sell Your Company While Retaining Ownership

This article is longer than usual, but it’s worth your time. If you’re invested in any of these companies, the content is particularly pertinent to you and your financial future.

An initial public offering (IPO) typically involves a company issuing shares (either new to generate capital or existing shares as insiders sell) to gain entry to a public stock market. In cases of dilution or partial exits, insiders are effectively ‘selling’ key portions of their company to the public.

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Over the last two to three decades, especially after 2006 when U.S. regulations mandated that firms recognize share-based compensation as an income statement expense rather than through equity, two significant trends have emerged:

1. Dual-class companies have entered the market, offering ‘low- or no-voting’ shares to the public while founders or insiders maintain crucial voting rights in different share classes (for instance, Google’s A and B shares, and Meta’s dual-class setup).
2. There has been a rise in companies, particularly those dominated by insider control, implementing share-based compensation (SBC) schemes that grant shares instead of cash payments to employees and often to themselves.

Essentially, insiders can ‘sell’ their companies during IPOs, realize wealth, yet maintain control and even, through SBC, potentially increase their stakes that they have sold (unless dual-class structures are in play). They sell their firms while also retaining ownership.

Dual-class structures pose a governance risk, mitigated by claims that ‘aligned’ founders in fast-moving, intellectual property-heavy sectors require the ability to make swift decisions, manage operations effectively, and focus on long-term growth without fear of being ousted for poor quarterly performance.

While SBC schemes are often justified for attracting and retaining talent, management frequently downplays these schemes as non-‘real’ costs (but if someone is earning it, someone is paying for it). This issue is exacerbated by dual-class companies that can issue numerous low- or no-voting shares, diluting minority interests while maintaining founders’ votes (and thus, ultimate value) intact.

Statistics indicate that founder-led firms in the S&P 500 have outperformed their competitors by as much as 2.1 times in total shareholder returns (TSR) from 2015 to 2024.

This outperformance continues, even excluding the tech sector, with founder-led firms beating peers by 1.4 times.

Utilizing public datasets and Google’s Gemini for analysis, I have compiled the following tables:

1. Segmenting the S&P 500 and Nasdaq into quartiles based on SBC as a percentage of GAAP (generally accepted accounting principles) profits;
2. Examining these quartiles for the prevalence of ‘founder-led’ entities, along with the voting/governance structures;
3. Analyzing shareholder votes for, against, and when excluding founders’ votes, minority opposition to remuneration policies; and
4. A detailed look at the 10 largest companies and their characteristics.

Source: S&P 500/Nasdaq public market data, Gemini analysis

The table indicates a correlation between ‘intellectual property’-heavy industries, like technology and biotechnology, and their SBC intensity.

Notably, returns in these sectors over the past five years have been elevated, potentially supporting claims regarding talent acquisition and retention.

(In contrast, capital-intensive sectors such as energy and real estate show minimal SBC and low returns. With the significant increase in data center and AI expenditures by tech firms transitioning from a capital-light approach to a capital-expenditure-heavy model, it raises questions about whether their SBC will naturally decrease, or if their returns will, or both? Though AI aspires to become a ‘global utility,’ caution is advised…)

SBC intensity versus founder-led

SBC quartile	Estimated % of companies with founder control	Governance model tendency	Strategic priority
First (High)	35% – 40%	Dual-class, insider super-voting	Innovation, R&D, long-term investments
Second (Med-High)	15% – 20%	Large blockholdings, board presence	Strategic renewal, market growth
Third (Med-Low)	8% – 12%	Standard proxy, passive majority	Operational scaling, efficiency
Fourth (Low)	<5%	Widely dispersed, non-founder leadership	Asset maintenance, yield

Source: S&P 500/Nasdaq public market data, Gemini analysis

This table suggests that companies with higher SBC are more likely to be founder-led and exhibit controlling or dual-class structures. Conversely, the reverse applies as well.

Minority votes for or against founder-led remuneration schemes

Company structure	Reported support (%)	Adjusted support (excluding insiders)	Opposition gap (pp)
Dual-class (Founder-led)	92.90%	85.60%	7.3x
Single-class (Professional)	89.30%	89.3% (approx.)	0

Source: S&P 500/Nasdaq public market data, Gemini analysis

Despite the connection between higher SBC intensity, founder-led firms, and elevated shareholder returns, data indicates that minority shareholders are increasingly voting against these initiatives and overall remuneration proposals.

In response, remuneration committees (RemCos) have attempted to introduce ‘evergreen’ SBC (renewed annually as a percentage of outstanding shares without necessitating shareholder votes).

However, incentives that are unearned are not truly incentives; they merely represent overheads.

Any evergreen SBC that depletes annual profits suggests that a company is not genuinely profitable (or, worst-case scenario, cripples the minority ownership value of a share).

Read: Navigating the RemCo annual cycle: Core steps for effective remuneration governance.

In essence, the market and minority investors are beginning to resist these schemes.

If minorities carry the same risk as insiders (or possibly, given their lack of control, more risk), why are they not receiving equal returns?

Reflecting this reality, the ‘Big Three’ asset managers with significant voting influence across equity markets – BlackRock, Vanguard, and State Street – are increasingly vocal about the principle of ‘One share, one vote’ and have started to back shareholder proposals aimed at dismantling dual-class structures.

Regrettably, as mainly passive investors, they are compelled to continue purchasing these companies.

Read: Fund giant BlackRock is eager to unify public and private markets.

Lastly, the following table details the 10 largest companies in these indices, viewed through the lens of SBC intensity, founder involvement, and governance attributes.

S&P 500 top 10 companies – SBC intensity, founder-led, and governance highlights

Ticker	Market cap share (%)	TTM net income share (%)	Founder involved?	SBC intensity profile
NVDA	7.00%	High	Yes (Jensen Huang)	Quartile 1
AAPL	6.30%	11.20%	Influenced	Quartile 2
MSFT	4.60%	10.10%	Post-founder	Quartile 2
AMZN	3.60%	7.70%	Post-founder CEO	Quartile 1
META	2.40%	6.00%	Yes (Zuckerberg)	Quartile 1
GOOGL	2.30%	13.2% (Combined)	Yes (Page/Brin)	Quartile 1
BRK.B	1.80%	6.60%	Yes (Warren Buffett)	Quartile 4
LLY	1.40%	Moderate	Professional	Quartile 2
JPM	1.30%	5.70%	Professional	Quartile 3
XOM	1.20%	2.80%	Professional	Quartile 4

Source: S&P 500/Nasdaq public market data, Gemini analysis

By classifying companies into quartiles based on SBC as a proportion of profits, this analysis illustrates how high SBC intensity is intricately tied to founder-run firms that prioritize long-term innovation and control retention.

While this framework has yielded superior total shareholder returns over the past five years (a positive outcome), it has also fostered a governance landscape in which the economic repercussions of dilution can be overlooked, and insider voting can supersede broader investor concerns (a negative outcome).

Any capitalist framework contains constructive tensions that drive efficient capital dispersal, and the increasing pressure from minority and institutional investors against insider gain may be subdued as long as returns remain robust.

However, history suggests that returns cannot sustain themselves indefinitely.

This escalating pressure will inevitably lead to a pivotal moment, and thus, the era of being able to sell your company while keeping control will eventually conclude.

* Keith McLachlan is the CEO of Element Investment Managers.