Strategies for Selling Your Business While Keeping Ownership

This article is lengthier than usual, but it’s definitely worth the read. If you have stakes in any of these companies, this information is particularly relevant to you and your financial outlook.

An Initial Public Offering (IPO) usually involves a company issuing shares (whether newly created to raise capital or existing shares as insiders liquidate) to access the public stock market. In scenarios of dilution or partial exits, insiders are essentially ‘selling’ significant portions of their company to the public.

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Over the past two to three decades, particularly after 2006 when U.S. regulations required firms to acknowledge share-based compensation as an expense on income statements instead of scaling through equity, two notable trends have emerged:

1. Companies with dual-class structures have entered the arena, offering ‘low- or no-voting’ shares to the public while founders or insiders retain essential voting rights in separate classes of shares (such as Google’s A and B shares, and Meta’s dual-class framework).
2. An increase in companies, especially those heavily influenced by insider control, has embraced share-based compensation (SBC) systems that provide shares instead of cash to employees, often including themselves.

In essence, insiders can ‘sell’ their companies during IPOs, realize wealth, yet still maintain control and potentially increase their stakes through SBC (unless dual-class frameworks are utilized). They relinquish their firms while also preserving ownership.

Dual-class arrangements pose governance challenges, which some defenders claim are justified, arguing that ‘aligned’ founders in rapidly evolving, intellectual property-rich sectors require the flexibility to make quick decisions, manage operations efficiently, and prioritize long-term growth without the threat of being ousted for unsatisfactory quarterly results.

Although SBC schemes are often defended by the argument that they attract and retain talent, management frequently minimizes these schemes as non-‘real’ costs (but if someone is earning it, it’s clear that someone is paying for it). This dilemma is escalated by dual-class firms that can issue a multitude of low- or no-voting shares, diluting minority interests while safeguarding founders’ votes (and, thus, their ultimate value) intact.

Statistics reveal 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 persists even when excluding the tech sector, with founder-led companies surpassing their counterparts by 1.4 times.

Using public datasets and analyzing with Google’s Gemini, I have prepared the following tables:

1. Classifying the S&P 500 and Nasdaq into quartiles based on SBC intensity as a percentage of GAAP profits;
2. Assessing these quartiles for the occurrence of ‘founder-led’ businesses and their governance structures;
3. Investigating shareholder votes for, against, and excluding founder votes to see minority opposition to compensation policies; and
4. An in-depth analysis of the 10 largest companies and their attributes.

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

The table displays a correlation between industries rich in ‘intellectual property,’ such as technology and biotechnology, and their SBC intensity.

Returns in these sectors have been notably high over the last five years, potentially lending credence to claims around talent acquisition and retention.

(In comparison, capital-intensive sectors like energy and real estate exhibit both minimal SBC and lower returns. With the significant surge in data center and AI investments from tech companies shifting from a capital-light to a capital-heavy model, questions arise about whether their SBC will decrease naturally, their returns will drop, or both. As AI aspires to become a ‘global utility,’ cautious optimism is warranted…)

SBC intensity vs. founder-led

SBC quartile	Estimated % of companies with founder control	Tendency in governance model	Strategic focus
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 indicates that firms with heightened SBC are more likely to be founder-led and characterized by controlling or dual-class structures. The inverse also appears to hold true.

Minority votes for or against founder-led pay structures

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 relationship between higher SBC intensity, founder-led companies, and increased shareholder returns, evidence shows that minority shareholders are increasingly opposing these initiatives and overall remuneration proposals.

Consequently, remuneration committees (RemCos) have begun attempting to implement ‘evergreen’ SBC, which are renewed yearly as a percentage of outstanding shares without requiring shareholder votes.

Yet, incentives that are unearned are not real incentives; they essentially represent overheads.

Any evergreen SBC that diminishes annual profits implies that a company is not genuinely making money (or, in a worst-case scenario, severely undermines the minority ownership value of a share).

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

Ultimately, the market and minority investors are starting to push back against these schemes.

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

‘One share, one vote’ and have begun supporting shareholder proposals aimed at dismantling dual-class frameworks.

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

Read: Fund giant BlackRock expresses eagerness to unify public and private markets.

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Finally, the table below outlines the 10 largest companies within these indices, evaluated through the lens of SBC intensity, founder involvement, and governance characteristics.

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

Ticker	Market cap share (%)	TTM net income share (%)	Founder involvement?	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

This analysis categorizes companies into quartiles based on SBC as a proportion of profits, revealing the complex relationship between high SBC intensity, founder-led firms prioritizing long-term innovation, and control retention.

While this framework has generated superior total shareholder returns over the previous five years (a favorable outcome), it has also cultivated a governance environment where the economic consequences of dilution may be overlooked, allowing insider voting to overshadow broader investor concerns (a detriment).

Any capitalist system embodies constructive tensions that drive effective capital allocation, and the rising pressure from minority and institutional investors against insider advantages may diminish as long as returns remain strong.

Nonetheless, historical trends suggest that returns cannot last indefinitely.

This growing pressure will inevitably result in a crucial turning point, signaling the end of the era wherein individuals can divest from their companies while retaining control.

* Keith McLachlan is the CEO of Element Investment Managers.