Tech Founders Embraced Control Over Companies. This One Is Giving It Up.


The change comes as Mr. Pincus and his wife, Alison Gelb Pincus, are going through a divorce. Last year, publications in San Francisco, where Zynga is based, speculated that the divorce could jeopardize his control over Zynga. Ms. Pincus is challenging a prenuptial agreement with her husband, according to a document filed in California Superior Court. An attorney for Ms. Pincus did not respond to a request for comment.

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Zynga, which created popular internet games such as FarmVille, was once a high-flying company.

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Robert Galbraith/Reuters

In a phone interview, Mr. Pincus said his divorce, which he described as amicable, was “not part of or relevant to the announcement” of his conversion of his stock.

Rather, Mr. Pincus said, he made the decision in consultation with Zynga’s board, partly because of growing criticism of dual- and multiclass share structures. As part of the change, Mr. Pincus said, he will leave Zynga as an employee — he was executive chairman — and become nonexecutive chairman of the company’s board of directors.

“We think the company doesn’t benefit anymore from a multiclass structure,” Mr. Pincus said.

Dual-class voting structures have been around for decades and have been especially popular at media companies, such as News Corporation and The New York Times Company.

Many prominent tech companies have turned to them as well, starting with the initial public offering of Google in 2004. Since then, Facebook, Zynga, Snap and a variety of others have followed suit with similar structures. As a result, shareholder meetings for some of the world’s most valuable companies — including Facebook and Alphabet, the holding company that now owns Google — are mostly for show. Shareholders propose and vote on resolutions even though the founders have the only votes that matter.

The vast majority of companies that go public have a single class of stock, where one share equals one vote. About 81 percent of companies that went public last year had single-class arrangements, according to the Council of Institutional Investors, a nonprofit association of pension funds and other large investors.

Charles Elson, a corporate governance professor at the University of Delaware, said that in his 20 years of tracking issues around multiclass stock structures, Mr. Pincus was the first public company executive he could recall who voluntarily reduced his voting power so dramatically.

“It’s quite an unusual move, but it’s a welcome move,” Mr. Elson said.

Multiclass structures are bad for ordinary investors because they make founders unaccountable, he added. “If a C.E.O. does a poor job, he’s not going to fire himself,” he said. “The problems it creates far outweigh any benefits.”

Some recent studies, however, have suggested that companies with multiclass structures have outperformed companies with a single stock class. A report last month by the lawyer David Berger and Prof. Laurie Simon Hodrick of Columbia Business School concluded that there are benefits to multiclass structures, including limiting pressure from institutional investors, which own the majority of public shares. The authors said that calls to limit multiclass structures were premature.

In response to some of the criticism of multiclass structures, more companies are going public with provisions that automatically convert their shares to a single class after a period of time, anywhere from five to 20 years. Fitbit, the maker of fitness trackers, went public in 2015 with a 12-year provision that sunsets its dual-class stock, while the cloud software company Okta went public last year with a similar 10-year provision.

Mr. Pincus said Zynga’s multiclass share structure provided his company with “air cover” during several difficult years after it went public at the end of 2011. The company originally made games that people played on Facebook through desktop web browsers, but its business was upended by the surge of mobile gaming on smartphones.

Zynga gradually focused on mobile games, but its stock has languished even as it has mounted a turnaround under a new chief executive, Frank Gibeau. The company’s shares closed at $3.64 on Wednesday, far below the $10 public offering price. Zynga also announced it had swung to a profit of $5.6 million in the first quarter from a loss of $9.5 million a year ago.

Mr. Pincus said his voting control at Zynga had not given him veto power over outside offers to acquire the company, though it did give him the ability to replace board members. He said he had never exercised that right.

When asked if Zynga could consider acquisition offers more easily now that Mr. Pincus had relinquished most of his voting power, Mr. Gibeau said, “That’s not our mission — our focus is to grow the company.”

Mr. Pincus said he intended to devote more time to investing in start-ups. He said he was particularly interested in companies focused on the blockchain, the technology that’s behind electronic currencies like Bitcoin, but could also have broader applications.

Giving up his control of Zynga, Mr. Pincus said, will “create more space between me and the company whenever I go launch new products.”

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