Baillie Gifford is an Edinburgh investment partnership founded in 1908, famous for ultra-long-horizon, high-conviction growth investing — its early stakes in Amazon, Tesla and NIO are classics. Its "actual investors" philosophy holds world-changing companies on 5-10 year views; AUM is around $120bn. The Insights column carries its managers' investment views and thematic research.
This piece explains how Baillie Gifford evaluates dual-class share structures (where founders have more voting power per share). They say the structure itself isn't good or bad—it depends on the controller's quality, the company's stage, and checks and balances. Their framework focuses on whether the controller is trustworthy and aligned with shareholders. If yes, dual-class can protect long-term strategy; if no, it risks value destruction. No specific stocks are mentioned, but they warn about widening gaps between voting and economic ownership, and lack of sunset provisions (rules that reduce control over time).
One-sentence summary: A dual-class share structure is inherently neither good nor bad; its value depends entirely on the quality of the controller, the company's development stage, and the accompanying checks and balances. Baillie Gifford has developed a dynamic assessment framework for this purpose. [Cautious]
The core judgment of the article is that a dual-class share structure is inherently neither good nor bad; its value depends entirely on the quality of the controlling party, the company's stage of development, and supporting safeguards. The author states at the outset that this structure separates economic ownership from voting rights, with founders and public shareholders holding shares with different voting powers. It can either protect long-term strategy from short-term market pressures or weaken accountability.
The author cites a comment from Andrew Hill of the Financial Times to summarize this paradox:
> "The advantage of a dual-class share structure is that it protects entrepreneurial management from the demands of ordinary shareholders. The disadvantage of a dual-class share structure is that it protects entrepreneurial management from the demands of shareholders."
The article notes that since 2010, the proportion of IPOs adopting dual-class share structures has doubled, and over 40% of newly listed technology companies have differentiated voting rights. Approximately one-quarter of Baillie Gifford's client capital is invested in such companies, with a weighting nearly double that of the MSCI ACWI. The author emphasizes that academic evidence shows investment outcomes are highly context-dependent and require company-specific judgment.
The article argues that under concentrated voting rights, the quality and alignment of interests of the controlling party are the most critical evaluation dimensions. The author has developed an evaluation framework comprising eight questions but explicitly notes that these questions carry different weights, with "Quality and Alignment of Interests of the Controlling Party" (Question 2) serving as the foundation for the overall assessment.
The core questions of the framework include:
1. Rationale and Purpose: Why does the company adopt a dual-class share structure? The author requires finding "specific and defensible reasons," such as protecting long product cycles, sustaining innovation investment, or preserving a unique culture, and assessing whether this rationale remains valid as the company grows.
2. Quality and Alignment of Interests of the Controlling Party: This is the most fundamental question, as concentrated voting rights make the capability, integrity, and long-term orientation of the controlling party critically important.
The article emphasizes that a dual-class share structure can protect management from activist investors, hostile takeovers, or short-term demands, but it can also destroy value in the hands of an ineffective leader through overinvestment, poor acquisitions, and inefficient capital allocation. Therefore, the key to evaluation is not "whether there is a dual-class structure," but "whether, given the specific company's stage of development and context, the structure supports long-term value creation."
The author emphasizes that dual-class share structures grant highly concentrated voting power to controllers, making the quality, integrity, and judgment of the controller the core of evaluation. The article argues that if confidence in the controller's integrity or judgment is low, caution should be exercised even if other aspects appear favorable. The author states: "Where confidence in the controller’s integrity, alignment or judgement is low, positive answers elsewhere should be treated with caution."
Evaluation guidelines include: the controller's track record of value creation, capital discipline, and historical treatment of minority shareholders. The controller holding substantial economic ownership (rather than just voting rights) is a key indicator of alignment of interests. A widening gap between voting rights and economic exposure, or signs of self-dealing, are major red flags.
The dual-class structure itself provides limited information; the key lies in the degree of control concentration and its evolution post-listing. The author believes that the embedded level of control within the structure and changes since listing can materially alter the risk characteristics of an investment.
Evaluation should focus on: the voting ratio between different share classes, approval thresholds required for major decisions, and whether control provisions are stable or becoming entrenched. A persistently widening gap between voting rights and economic ownership, without compensating safeguards, is a particularly concerning signal.
As shareholder voting power is diluted, the board and other governance mechanisms bear a heavier oversight burden. The author stresses that the board must not only be independent in composition but also demonstrate a willingness to challenge the controller in practice.
Key evaluation points include: the robustness of processes for auditing, compensation, and related-party transactions; and whether minority shareholders have substantive protections in major decisions. The author specifically notes that combining dual-class structures with other control-enhancing mechanisms, such as classified boards, significantly exacerbates accountability risks.
The core rationale for dual-class structures is to enable management to make long-term investments; thus, it is necessary to verify whether this freedom is being used effectively. The author argues that companies should be assessed on whether they consistently allocate capital to R&D, talent, new markets, or long-cycle opportunities, in line with their stated strategy.
Conversely, signs of complacency, value-destructive acquisitions, or capital allocation decisions prioritizing the controller's personal liquidity over long-term value creation are negative signals. The author warns that this structure should not serve as a shield for management to evade scrutiny.
Long-term financial performance and market valuation are important (though imperfect) evidence for judging whether dual-class structures benefit shareholder interests. Evaluation should consider industry and stage of development, focusing on trends rather than point-in-time data.
Persistent underperformance, or a valuation discount clearly linked to governance concerns rather than fundamentals, is a significant signal. The author also cautions against prematurely attributing strong short-term performance in young companies to governance structures.
The rationale for concentrated control is rarely static. The author points out that a structure suitable for a young founder-led enterprise may become inappropriate as the company scales, leadership transitions, or the founder's economic stake declines.
Evaluation should consider: the company's lifecycle stage, whether the original rationale for control still holds, and the credibility of succession plans and sunset provisions. If there is no reasonable mechanism for concentrated control to diminish over time, the evidentiary requirements from other parts of the framework become more stringent.
Past behavior provides the most direct evidence of how management actually wields concentrated control and also foreshadows how it will handle future challenges. Evaluation should review governance history, including controversies, shareholder disputes, or regulatory interventions.
Positive signals should also be noted: voluntary governance improvements, transparent reporting, and constructive communication with minority shareholders. The author emphasizes that the direction of governance—whether it is strengthening or weakening—is as important as any point-in-time assessment.
This framework is a dynamic assessment tool, not a static checklist, and is used both pre-investment and during the holding period. Pre-investment, it helps determine whether a dual-class structure is acceptable and how governance risks affect position sizing and engagement priorities. During the holding period, it monitors whether alignment, behavior, and safeguards are improving or deteriorating. When concerns escalate, it can trigger further engagement, voting actions, or even exit decisions.
Institutional perspective bias note: Baillie Gifford invests approximately one-quarter of its client capital in dual-class companies, with a weighting nearly double that of the MSCI ACWI. Therefore, its framework is essentially a systematic approach to risk control for its own heavily held structures, rather than a neutral or critical stance on dual-class structures. Readers should be aware that the institution has an incentive to argue for the investability of such structures.
(This article is a discussion of governance frameworks and does not involve specific investable positions or substantive discussions, hence this table is omitted.)