Saturday, July 21, 2018
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Sisyphus’ Lament

Snapchat and democracy’s zero market value

Singapore—Snap Inc.’s $3.4 billion IPO on March 2 sold shares with no right to vote, implying investors do not value it. No one raised it is unconstitutional to appoint barangay (village) leaders. Do our elections have zero value, too?

In 2011, Stanford students Evan Spiegel, Fil-Am Bobby Murphy and Reggie Brown developed Snapchat, an app to send self-deleting messages, photos and videos. Counterintuitively, it restored spontaneity in communication.

By the IPO, 158 million people, mostly aged 18-34, sent 2.5 billion “snaps” daily. The stock surged over 70 percent in two days.


But the prospectus was a corporate governance professor’s nightmare. The first sentence, right on the cover, read: “This is an initial public offering of shares of non-voting Class A common stock.”

Outside IPO shares, employees and venture capital investors hold B shares with one vote each.

Snap’s founders hold C shares with 10 votes each, and 88.5 percent of votes but only 18.7 percent of shares.
Nine months after a founder’s death or when he owns less than 30 percent of the C shares, his C shares will convert into B shares. When all C shares convert, all Snap shares will have one vote each.

The prospectus argues “our success thus far has been attributable to our founders’ leadership, creative vision, and management abilities.” Snap’s founders must make all decisions insulated from short-term pressures—for life.

They rejected Facebook’s 2013 $3 billion buyout offer. Last month, Snap was worth over $30 billion.

Among other critics, Harvard Law School’s corporate governance blog outlined how such “controlled companies”
exhibit financial underperformance, less board independence and ethnic and gender diversity, more related party transactions, and higher CEO pay.

But Facebook, Google and 15 percent of US IPOs in 2015 had supervoting shares. Snap was only the first to sell outright no vote shares.

Weeks before Snap’s IPO, Singapore and Hong Kong’s stock exchanges launched consultations on allowing supervoting shares.


Silicon Valley thus reduced corporate democracy to selling when one no longer trusts Dear Leader. Why risk kicking a Steve Jobs out of his own company? Who cares about voting if the share price is going up?

Does this translate to Philippine politics?

Days after Snap’s IPO, President Duterte proposed to postpone barangay elections and instead appoint temporary leaders nominated by religious and civic groups. He said 40 percent of barangay officials abet drugs.

Few, such as Liga ng mga Barangay president Edmund Abesamis, election lawyer Emil Marañon III and SunStar Cebu columnist Nini Cabaero, protested that this is fundamentally inconsistent with our democracy and Constitution. Even the Inquirer’s powerful March 28 editorial “Controlling the barangays” merely implied a new law would be needed.

Our Constitution’s Article X, Section 1 created specific levels of local government: “provinces, cities, municipalities, and barangays.”

Article X refers to “elective local officials” and local elections. It does not explicitly say that local leaders must be elected, but its wording assumes this is obvious.

Under Article X, Section 4, the President “shall exercise general supervision over local governments.” “Supervision” is legally less than “control” and excludes appointing leaders.

(Marañon itemized each key phrase in a March 29 Rappler column.)

And if a law could allow appointment of barangay leaders, then why not mayors, too?

But who cares about losing an entire level of local elections? About the lowly barangay? We ask candidates to first run for barangay captain as an insult.

If Snap, Google and Facebook offer nonvoting shares, perhaps we want nonvoting citizens. Would we rather abdicate complex choices and just amuse ourselves on Snapchat, as long as the economy is going up?

Few reacted, so perhaps democracy is not only tiresome, it has zero value. Even reading the Constitution is a hassle.

We cannot IPO a barangay to price this political experiment. But Snap shares dropped 22.6 percent from $27.09 on March 3 to $20.98 on April 8.

React:, Twitter @oscarfbtan,

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