Internet users have spent the past year documenting which Hollywood actors and social media stars were born to rich and famous parents. Seeing nepotism babies or nepo babies is all the rage on TikTok. This month, the website Fashionista published a list of “Up and Coming Nepo Babies to Watch.” Eve Jobs, fashion model and daughter of Steve, and Phoebe, daughter of Bill Gates, influencer, activist and Stanford student both made the race.
But technology’s contribution to the Nipo baby trend isn’t limited to influencers with famous surnames. Some founders have the ability to give full control of life instead of giving their feet to children.
The exciting, high-profile career lines are always full of Nepo babies. Canadian Prime Minister Justin Trudeau is one. So did former US President George W. Bush. Family-run businesses, including media groups, rely on them. Connections, wealth and familiarity with the line of work can bring huge benefits.
Tech takes it a step further. WeWork founder Adam Neumann was clearer than most when he told his employees that he wanted his children to be the co-working space company’s moral compass. WeWork’s subsequent failure put an end to that. Since the Newman children were all under ten years old at the time, they probably didn’t care. But if WeWork had listed it when he wanted it, he would have had a way to hand it down to his children one day.
The way this works is through something called two-part shares. Tech founders who take their companies public love dual-tier stocks. The structure means that even if they own a small number of shares, they can retain the majority of voting rights. This allows them to continue running the company as they see fit, regardless of shareholder sentiment.
Dual-class shares are the reason no one can oust Mark Zuckerberg as CEO of Meta, no matter how messed up he looks or how low the stock price drops. His shares have more voting power than other people. Often, other shareholders support the elimination of super-voting shares. Because the primary choice is Zuckerberg’s, the vote will never fail.
Venture capitalist Bill Gurley calls these stocks a red flag that empowers entrepreneurs to ignore investors. Still, investors are eager to buy into fast-growing tech stocks, so they’ve embraced the trend. When social media company Snap went public, founder Evan Spiegel convinced people to buy shares with zero voting rights. Along with his co-founder, he controls 99 percent of the voting power of the shares. Everything they say goes.
Dual-class shares do not have a sunset clause that reverts them back to regular shares one day, so their power is perpetual. As former Securities and Exchange Commissioner Robert Jackson wrote, “Requiring investors to place eternal trust in corporate royalties is antithetical to our American values. Or, as the New York Times put it, “You can’t fire Mark Zuckerberg’s kids.”
An SEC study found that after seven or more years of listing, companies with durable dual-tier stocks underperformed. Still, founders continue to push for them. Jack Dorsey blamed his lack of them on why he couldn’t run Twitter the way he wanted. In the first half of 2022, 17 percent of the companies that joined the U.S. markets had unequal voting rights, according to the Council of Institutional Investors, which represents a large pension fund. Half of it didn’t have a sunset clause. If Elon Musk takes SpaceX public, expect him to argue the case for perpetual super-voting rights. Perhaps one of his 10 children will be in line to succeed him.
The transformation of the technology sector into a series of family-run businesses does not delight in its self-perceptions. Long-term ownership increases resilience. But those who hand-pick family members to run things in public companies are viewed with suspicion.
The speculation is that it ties into Trump’s ability to put the wrong people in important jobs. Consider former Korean Air executive Heather Cho, daughter of the company’s chairman. In the year In 2014, her attack on flight attendants who used not bags, but flight attendants, sparked debate about the power of “owning” families in corporate Korea.
Tech is still a young industry. Children of successful founders may not want to create new dynasties. If they do, the Hollywood Nepo kids should take note of their lessons. Talent and humility help sidestep accusations of unearned privilege. No one can criticize actress Billie Lourd, daughter of Carrie Fisher and granddaughter of Debbie Reynolds. Complaints will turn you into a villain. Johnny Depp’s model daughter Lily-Rose has tried to challenge the idea that her family played a big role in her success. The result: “What is Nepo Baby – and why are they so easy to hate?” A viral article titled
elaine.moore@ft.com
