By Levi Sumagaysay
Ahead of their first shareholder meetings as public companies, Airbnb Inc. and DoorDash Inc. are being called out for their corporate governance structures and top executives’ rich paydays.
Influential proxy-advisory firms Institutional Shareholder Services, or ISS, and Glass Lewis & Co. are recommending shareholders withhold their board votes from Airbnb (NAS:ABNB) Chairman and Chief Executive Brian Chesky and DoorDash (NYS:DASH) Chairman and CEO Tony Xu because of their compensation and the control they wield over the companies they co-founded, as well as other corporate-governance issues. Both companies went public last year, and both executives received giant stock bonuses at the time of their initial public offerings.
In short, the corporate governance structures Chesky and Xu set up made them billionaires and gave them significant control over their companies for the foreseeable future, and shareholder watchdogs are sounding the alarm.
Xu holds more than 70% of the voting power in DoorDash because of the delivery platform provider’s dual-class share structure and an agreement with co-founders Andy Fang and Stanley Tang that gives him voting authority over their shares. In addition, shareholders are set to vote on a mega-grant to Xu that could value IPO stock grants worth $413 million at more than $1 billion, Glass Lewis pointed out. That $413 million award made Xu the highest-paid CEO in the Bay Area in 2020, according to the San Francisco Business Times .
When reached for comment, a DoorDash spokeswoman said Thursday, “The performance award is entirely forward-looking, and paid only if Tony and DoorDash meet a series of increasingly ambitious performance goals, significantly outperforming the market and achieving a 5x return over the next seven years.”
Similarly, Glass Lewis noted that lodging-booking platform Airbnb’s $120 million stock grant to Chesky skyrocketed to a potential value of $1.67 billion after the company’s IPO.
“The quantum of this award warrants scrutiny, and shareholders should note that the company’s stock price has exceeded expectations,” Glass Lewis said in a “controversy alert” Thursday. ISS said in its proxy research report about Airbnb: “The CEO’s large front-loaded equity award intended to cover a 10-year period raises significant concerns.”
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Glass Lewis also mentioned that Airbnb “has clearly disclosed that this grant is intended to be Mr. Chesky’s sole form of incentive compensation for the 10-year term of the award, in addition to a $1.00 base salary.” But it also said shareholders should “closely monitor” pay arrangements going forward.
In its proxy research report about DoorDash, ISS further said it opposes the election of all directors who voted for provisions that give the company’s shareholders little power. But because the company has a classified board structure, only Xu is up for re-election. Therefore, ISS recommends a no vote against him.
A vote against Xu is “warranted given the board’s failure to remove, or subjectto a reasonable sunset requirement, the dual-class capital structure and the classified board structure, each of which adversely impacts shareholder rights,” ISS said in its report. Its recommendation comes after CtW Investment Group last month filed a notice of exempt solicitation urging shareholders to vote against Xu for the same reasons.
“In view of growing competitive and regulatory risks to its business model, it is imperative that DoorDash shareholders use what voice they have to send a clear message to the company,” wrote Dieter Waizenegger, executive director of CtW, in the exempt solicitation letter. CtW works with union-sponsored pension funds that are “substantial” shareholders in the company, the letter said.
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DoorDash’s business model relies on using delivery workers it considers independent contractors instead of employees, a model that CtW says is “increasingly under fire” in the U.S. and Europe.
CtW is under no illusion that it can make significant change at DoorDash, at least for now.
“It’s certainly not possible for us to win a vote at DoorDash that would undo the structure,” Richard Clayton, research director at CtW, told MarketWatch on Thursday. “But drawing attention to the unfairness and to the risks is something we can do.”
Pointing out the issues could lead to regulatory or legislative changes, he said, mentioning that, for example, companies with dual-class structures are now ineligible for listing in the S&P 500 and other major indexes (S&P:SPX) .
Both Glass Lewis and ISS also recommend shareholders withhold votes from Airbnb directors Kenneth Chenault and Angela Ahrendts, “given the board’s failure to remove, or subject to a reasonable sunset requirement, the multi-class capital structure, the classified board, and the supermajority-vote requirement to enact certain changes to the governing documents, each of which adversely impacts shareholder rights.” Chenault and Ahrendts were on the company’s board before its IPO.
Both advisory firms also pointed out other issues they said shareholders should be concerned about. They say DoorDash has not provided enough disclosure about the board’s oversight of environmental and social risk, with Glass Lewis saying that beginning in 2022 it will recommend that shareholders withhold votes from the chair of the committee responsible.
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DoorDash and Airbnb have also not given adequate disclosure about their board diversity policies and considerations, Glass Lewis said.
Airbnb’s multi-class stock structure, which gives Chesky and co-founders Nate Blecharczyk and Joe Gebbia 46.7% of total voting power, does have a time limit. But ISS said that “while the multi-class structure is subject to a time-based sunset, the 20-year time frame is not considered to be reasonable. As such, withhold votes are warranted on all director nominees.”
The two San Francisco-based companies are both scheduled to hold their annual general meetings June 22.
Airbnb had not returned a request for comment at the time of publication.
See: 5 things to know about DoorDash’s IPO
See: 5 things to know about Airbnb’s IPO