Shopify takes heat over CEO voting rights proposal

Shopify Inc.’s proposal to give special voting rights to chief executive officer Tobi Lutke has run into a powerful opponent, as another prominent advisory firm tells shareholders they should reject it.

Institutional Shareholder Services Inc. said on Wednesday it opposes the company’s plan to grant Lutke a “founder share” that allows him to effectively control the Canadian company’s board, even if his ownership stake shrinks.

Another proxy advisory firm, Glass Lewis & Co., is also against the proposal, which investors will vote on June 7.

The special share would give Lutke at least 40 per cent of the voting rights at Shopify under certain conditions, including that he stay with the company.

ISS noted that the CEO would keep those votes even if his equity stake is diluted to as little as 1.1 per cent.

“Canadian market best practices generally call for a following of a one share, one vote principle, with a view to alignment between economic interest and voting power at a given company,” ISS said in a report to clients.

The founder share for Lutke “requires minority shareholders to effectively embrace a multiple class share structure for even longer than was envisioned” at the time of the company’s initial public offering in 2015.

Lutke and director John Phillips already have voting control of Shopify through their ownership of unlisted Class B shares, but they stand to lose it in the future if the company continues to issue new Class A shares. The founder share for Lutke is designed to prevent that from happening.