Shopify made moves to protect its founder and CEO Tobi Lütke’s position in the e-commerce company with a proposed change to its share structure.
If approved by shareholders, the proposal will modernize Shopify’s governance structure and allow Shopify to remain “mission-driven and merchant-obsessed” while sustaining an innovative culture, the company said.
The new arrangement will give Lütke 40 percent of the total voting power.
Shopify opined that the proposal will also strengthen the foundation for long-term stewardship by Lütke, and called him a proven leader who has delivered significant shareholder value since the company’s IPO. “This stability of leadership is expected to cement the company’s focus on the long-term to the lasting benefit of merchants, employees and shareholders,” the company added.
“The shift to digital commerce has been supercharged over the last two years, permanently changing the landscape of our industry and positioning Shopify at a key inflection point in its growth story,” said Robert Ashe, Shopify’s lead independent director.
“As we look ahead, the board undertook a careful review of Shopify’s governance structure to ensure the company is best positioned to capitalize on the massive opportunities for continued growth and value creation,” Ashe said.
He noted that a special committee of independent directors reviewed this proposal and determined that, taken together, these changes will enhance Shopify’s strategic flexibility and ability to pursue value-enhancing organic and external opportunities.
“Tobi is key to supporting and executing Shopify’s strategic vision and this proposal ensures his interests are aligned with long-term shareholder value creation,” Ashe added.
The company further added that the proposal would modernize Shopify’s governance structure to align it more closely with the company’s long-term market opportunities.
The company currently has Class A shares with one vote per share and Class B shares with 10 votes per share, with Class B shareholders having a controlling position equivalent to approximately 51 percent of the total voting power.
Shopify is proposing to issue Lütke with a founder’s share that combined with the class B shares would give him 40 percent of the vote. Should Lütke step away from the company, the founder share would have a sunset clause; the founder share is not transferable.
The board, based on the recommendation of the special committee, unanimously recommended that shareholders vote in favour of the proposal.
The company also announced that its board approved a proposed 10-for-one split of the company’s class A and class B shares, which it said would make share ownership more accessible to all investors. The planned share split is subject to the approval of at least two-thirds of the shareholders.
Shopify is also in the process of overhauling compensation packages for its employees, giving staffers more choice between cash and equity, The Globe and Mail reported in early April.
“Previously, employees were provided restricted stock units in addition to base salaries at an allocation set by management,” according to The Globe. “Now, there will no longer be a fixed amount, so employees will receive a single total compensation number and have the choice to determine how much is cash versus stock.”
The changes in Lütke’s voting shares follows tweets from him in late March that called stock price “ irrelevant to the players on the field.” Lütke’s full tweet read: “Relationship between stock price and a public company is the same as the relationship between a pro sports team and betting markets. Sort of related, but irrelevant to the players on the field.”
The Tweet immediately attracted criticism, with one reply noting that Shopify compensates employees with stock. “Seems highly relevant in that case. Huge incentive to move up stock price,” noted one investment analyst.
Since Shopify’s IPO, Shopify class A shares have increased in value from $17 to more than $675 as of March 31, resulting in total shareholder returns of over 3,850 percent, significantly outpacing the broader market, according to Shopify director John Phillips.
However, Phillips didn’t note that Shopify’s share price dropped sharply after the company disclosed slowing growth compared to the record results it saw in the fourth quarter of 2020.
The Ottawa-based company’s Q4 2021 earnings showed slowing revenue growth, decelerating Black Friday sales, and soft revenue guidance, as the COVID-19 pandemic, government lockdowns, and the stimulus tailwinds that drove the rise of e-commerce begins to subside.
Shopify trades on the New York Stock Exchange (NYSE) and Toronto Stock Exchange under the symbol ‘SHOP.’ At presstime Shopify shares were trading at $777.05 CAD, down from a 52-week high of $2,228.73 CAD.
At the same time as Shopify announced its governance changes, Dovetale – a startup that builds online tools to help brands build creative communities of fans, influencers, creators, and customers – announced that it has been bought by Shopify.
Dovetale originally launched an integration and application for Shopify merchants in 2020, called Community. The integration was designed to help Shopify merchants work more quickly with influencers as well as to measure the value of each of those relationships.
Now, the startup is rebranded as of April 11 as Dovetale by Shopify, and it announced it would be removing the $99 a month fee for its integration and making it free for all Shopify merchants.
BetaKit reached out to Shopify for comment, but the company had yet to respond by time of publication.
Shopify did not disclose the price of the acquisition, according to Modern Retail, which noted that Shopify hopes to convert Dovetale’s large community of influencers into merchants.
Dovetale claims that since it launched Community, it has seen thousands of brands install the integration and work with tens of thousands of creators. “We’ve seen creators with under 10K followers excel as top affiliate ambassadors,” according to Dovetale’s post. “We’ve seen millions of dollars flow through our platform from creator offers to the merchant rebels we initially sought to arm.”
Image source Shopify