A couple of weeks ago, when Mark Zuckerberg wore his trademark hoodie to meetings with potential investors in Facebook’s I.P.O., not everyone was impressed. Michael Pachter, an analyst at Wedbush Securities, said that it was a “mark of immaturity” and Zuckerberg’s way of “showing investors that he doesn’t care that much.” Pachter sounded like a cranky geezer telling the neighborhood kids to stay off his lawn, but he was right about Zuckerberg’s view of investors. Zuckerberg has been careful to make sure that investors don’t interfere with the way he runs his company. Before Facebook went public, it created two classes of shares, and Zuckerberg’s shares have far more voting power than the ones sold to outside shareholders. After Friday’s I.P.O., he will own eighteen per cent of the company but will control fifty-seven per cent of the voting shares, putting him in total command.

Illustration by Christoph Niemann

Dual-class share structures used to be rare and confined largely to family-run enterprises or media companies, such as the New York Times, where they could be justified as protecting the company’s public mission. The received wisdom was that active investors are good for companies and for the market as a whole, and that companies need to put shareholders first. But Google bucked convention when, in 2004, it adopted the dual-class structure for its I.P.O., and the arrangement has become popular among technology companies. All the big tech I.P.O.s of the past year—LinkedIn, Groupon, Yelp, Zynga—featured it, and Google’s recent stock split took things to a new level and sold shares with no voting rights at all. Whereas the C.E.O.s of most public companies have to spend time kowtowing to investors, Zuckerberg and his peers are insisting on the right to say, “Thanks for your money. Now shut up.”

There’s reason to be concerned at the spread of the dual-class structure. One study that examined a large sample of dual-class firms from 1994 to 2001 found that they notably underperformed the market. And few people would say that the problem with corporate America is that C.E.O.s have too little authority; the recent travails of Rupert Murdoch are a testament to the problem of a monarchical executive. Yet when the right person is in charge the dual-class structure can help companies avoid one of the problems besetting modern business—the short-termism of big institutional investors. In the postwar era, most shareholders were individual investors who held on to stocks for ages and exerted little pressure on companies. Executives didn’t have to worry about quarterly earnings and had the freedom to invest in long-term research and development. In today’s market, by contrast, investors are far more aggressive in pressuring companies to hit their numbers. This has its benefits—companies are more efficient in using shareholder money, and underperforming C.E.O.s are more likely to be shown the door. But investors now have very short-term horizons. The average annual turnover of a mutual-fund portfolio is a hundred per cent, and for a hedge-fund portfolio around three hundred per cent. When shareholders reckon in months (or weeks) rather than in years, it’s harder for companies to take the long view.

Still, even if there are potential virtues in a dual-class share structure, it turns investors into mere spectators. So why do they put up with it? The simple answer is that they don’t have much choice. Investors these days are hungry for any kind of return: the stock market as a whole has barely risen in the past decade; bond yields are unusually low; and, thanks to the so-called global savings glut, much of it driven by China, there is just too much capital out there chasing too few worthwhile investments. This makes investors willing to accept terms that they would once have found intolerable. On the flip side, companies like Facebook don’t really need the money that an I.P.O. raises. Thanks to things like open-source software and cloud computing, the cost of starting and expanding a technology company has fallen dramatically, and Facebook’s operating profit is more than enough to fund its growth. (Its I.P.O. prospectus is up front about the fact that it envisages no “specific uses” for the sixteen billion dollars it just raised, most of which it will park in U.S. treasuries, like an aging retiree.) Investors, in other words, need potential highfliers like Facebook more than the companies need them.

Compounding this problem is the fact that being a public company is no longer as alluring as it once was. The hassles of dealing with Wall Street and manic-depressive investors have arguably never been worse, even as a whole infrastructure has sprung up to make it easier for companies to stay private while still giving their owners and employees a chance to cash out. That’s partly why the number of I.P.O.s has dropped sharply in the past decade, and why the number of public companies in the U.S. has fallen by more than forty per cent since 1997. For many start-ups, staying private or selling yourself to a bigger company—as Instagram did when it sold out to Facebook for a billion dollars—has never looked more appealing. Public companies aren’t going to disappear, but we are witnessing a significant shift in power from shareholders to entrepreneurs and managers, one that may make the stock market less central to American capitalism. Facebook’s I.P.O. was the biggest tech I.P.O. the U.S. has ever seen. It also seems likely to be the biggest it will ever see. ♦