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Debunking Five Investor Relations Fallacies for Controlled Companies

SpaceX, one of the largest companies in the world, just went public, and its founder, Elon Musk, holds 82.4% of the company’s voting power.¹

Theoretically, controlled companies are supposed to be insulated from shareholder pressure. Even “effectively controlled” companies – those with a large investor (for example, a 20% holder) – should benefit from this protection. Conceptually, a controlling shareholder, whether through economic ownership or through multi-class share structures, should remove the threat of proxy contests, hostile takeovers or other challenges to board decisions. The textbook activist mechanisms that are supposed to hold management and a company’s board accountable to shareholders do not apply to these companies.

Why, then, are controlled companies among the hottest new targets for shareholder activism and under pressure from the capital markets to pursue or stop pursuing merger and acquisition (“M&A”) decisions?

Now, more than ever, controlled companies must consider all investors and stakeholders – not just their controlling shareholders. The presence of a controlling shareholder can create fallacies that, in reality, play out differently in the capital markets.

What underpins these fallacies or misconceptions is the desire for a premium valuation. At the end of the day, even when a dual-class share structure leads to voting interests outweighing economic interests, a controlling shareholder has a significant amount of capital invested in the business and is the primary beneficiary of value creation.

Here are five fallacies about how controlled companies interact with their shareholders and the capital markets in general:

Fallacy: Management and Board Members of Controlled Companies Are Unaffected by Public Criticism and the Threat of Shareholder Activism.

Explanation: Human psychology is a driving force for decision-making, whether that’s for the capital markets at large or the strategic direction at individual companies. Executives running companies do not enjoy underperforming their competitors, let alone being called out for it publicly. For controlled companies, the threat of activism is less about losing votes and more about losing control of the company’s narrative and having your reputation damaged in the process.
Example: Snap, Inc. and Zoom, Inc. both faced activist campaigns despite shareholders’ slim chance of winning at the ballot box. In March 2026, Irenic Capital Management and Randian Capital separately published presentations and letters to the board calling on Snap to sell, spin off, or self-fund Specs, its alternate reality hardware business, while also advocating for governance reforms and greater accountability to drive improved shareholder returns.² Similarly, in April 2026, Spruce Point Capital Management stated that Zoom should pursue strategic alternatives within the next year if the company could not return more capital to shareholders and reduce costs.³
Recommendation for Controlled Companies: Proactively identify places where the market misunderstands your equity story by monitoring how the company is perceived and performing relative to peers. Understanding how you compare to peers and what the market is, or is not, giving you credit for is the first step to revisiting your equity narrative and disclosures in order to address misconceptions, capitalize on opportunities, and ensure proper valuation by the market.

Fallacy: Signaling and Predictability Are Less Important for Controlled Companies Because There Are No Potential Repercussions.

Explanation: Public markets reward predictability and often punish surprises. Active investors buy a stock because of their belief in the underlying equity story and how that narrative fits within their portfolio. Any change in the equity story can result in investors selling the stock – either because their investment committee forces them to, because they need more time to understand the new thesis, or because they simply no longer support the company’s direction. This is most evident when companies make large strategic pivots that deviate from their stated capital allocation priorities, especially inorganically.
Example: Dick’s Sporting Goods’ acquisition of Foot Locker in March 2025 illustrates how a company’s value can be affected when shareholders are caught off guard by a transaction: Shares fell nearly 15% following the announcement, despite the company having evaluated the deal for months.⁴ The reaction from sell-side analysts and other market participants noted the market’s apparent lack of expectation that Dick’s would pursue a transformative acquisition focused on mall-based footwear and international expansion.
Recommendation for Controlled Companies: This does not mean you can never change your capital allocation priorities – you absolutely should as the market, your business, and its investment opportunities evolve. It does, however, place importance on bringing investors along on the journey of changing your capital allocation priorities, providing investors with a clear answer for why these priorities have shifted. For inorganic growth, proactive signaling can be very delicate and nuanced but is even more important. Whether at investor conferences or on quarterly earnings calls, thoughtful communication helps investors see a major announcement as a logical next step rather than an unwelcome surprise.

Fallacy: Performance Alone Drives Valuation.

Explanation: Companies with dual-class share structures sometimes trade at a discount to the valuation they might otherwise receive if they had a single-class share structure. There are shareholders who will allocate less capital, or no capital at all, to companies in which unaffiliated shareholders have limited voting power – either because they are constrained by investment mandates or feel that management and board decisions will be made unilaterally without shareholder perspective. Investors may therefore assign a lower valuation to reflect governance risks and the lack of shareholder-driven changes to provide upside.
Example: This valuation discount is why investors have proactively sought to change dual-class share structures at companies in the past. Activist investor Starboard Value pushed News Corporation in 2024 to eliminate its dual-class structure, arguing it “exacerbated News Corp’s valuation discount.”⁵ Although the Murdochs’ voting control ultimately defeated the proposal, Starboard succeeded in sparking debate over the company’s governance and the associated impact on valuation.
Recommendation for Controlled Companies: Companies should weigh the trade-offs of their dual-class structure, as the discount applied to companies with dual-class share structures is not the same at every company. Investors do not think twice about the structure at some companies, while they believe that at other companies the stock could materially re-rate if certain changes were made but those changes are unlikely to be made without the removal of unequal voting rights. Understanding why investors buy (or do not buy) your stock is critical.

Fallacy: Everyone Running a Controlled Company Has the Same Views on Strategic Decisions.

Explanation: The confrontational nature of shareholder activism, particularly as it is covered in the media, often leads us to think of companies as one collective group with completely unified views. However, that is rarely the case. Companies’ boardrooms and management teams are made up of individuals who should, and do, have intense debates about different approaches and may not always agree on the best path forward. That’s true for controlled companies, too. An activist can uncover these internal debates and advocate for a certain action, helping move the needle on decisions to be reached internally.
Example: In 2022 and 2024, Unifirst privately received two attractive buyout offers from Cintas. Despite the substantial premiums offered, Unifirst’s board rejected both proposals, while the company’s stock price largely stagnated. After Unifirst rejected the offers from Cintas, Engine Capital launched a campaign in October 2025 arguing that the board had not run a genuine process to evaluate strategic alternatives.⁶ This campaign uncovered significant internal debate that had occurred in the Unifirst boardroom – and apparently specifically within the founding family. Engine Capital took advantage of disagreements at Unifirst, nominating former Unifirst Executive Vice President and founding family member Michael Croatti as a dissident nominee, bringing family tensions to the surface. While a member of the controlling family joining an activist slate is an extreme example, activists’ demands are often being discussed behind the scenes, and this example demonstrates that even within a controlling shareholder group, there can be differing perspectives on strategy.
Recommendation for Controlled Companies: Receiving unfiltered feedback from the street is paramount to inform decision-making. Engaging with shareholders proactively and regularly theoretically allows for this, but, in reality, feedback is often filtered during these discussions. Companies should periodically conduct a blinded perception study to get an understanding of how the market and analysts perceive the company, its strategy, and its equity narrative. These proactive measures will allow the company to directly adjust messaging and inform decision-making, improving its ability to attract capital.

Fallacy: Controlled Companies Don’t Need to Attract Capital or Sell the Stock.

Explanation: Just because controlled companies don’t need investors to help them secure their votes doesn’t mean they’re insulated from capital markets or indifferent to valuation. Even in a controlled structure, companies still rely on public markets for financing, liquidity, employee compensation, and more. A depressed stock price can increase the cost of capital, reduce strategic flexibility, and have other negative impacts.
Example: In 2021, Meta began investing heavily into the metaverse, a strategy to become the next major computing platform that would allow users to participate in a persistent, immersive digital environment.⁷ Following $40 billion spent on the metaverse, Meta announced the “Year of Efficiency” in February 2023, effectively stopping its investments in the Metaverse. Despite being a controlled company, Meta publicly pivoted its capital allocation strategy in response to investor sentiment.⁸
Recommendation for Controlled Companies: Show why the path forward is the right one for value creation. Controlled companies have underperformed widely held public companies on both five- and 10-year total shareholder return metrics.⁹ Controlled companies must communicate strategic decisions in terms of value to all shareholders if they want to build lasting confidence. This does not mean that all capital expenditures are frowned upon – it just means shareholders should understand the return on investment and how a capital expenditure fits into the company’s broader long-term strategy.

Investors in controlled companies accept a structural disadvantage when it comes to governance. That does not mean they will accept a decrease in transparency, capital discipline, or evidence that the board is actively seeking to enhance the long-term value of the company. In a market that increasingly sees M&A activity and shareholder activism as important functions to force-protect the value of shareholders’ investments, the controlled companies that thrive will be the ones that view proactive and strategic investor communication as a competitive advantage – not a hindrance avoided by being controlled.

Footnotes:

1: Space Exploration Technologies Corp., Prospectus filed pursuant to Rule 424(b)(4). (Jun. 12, 2026).

2: Irenic Capital Management, LP. , Press Release, “Irenic Sends Letter to Snap Inc. Co-Founder and CEO Evan Spiegel and Issues Presentation Outlining Actionable Steps to Unlock Value,” (Mar. 31, 2026). Randian Capital LLC, Press Release, “Randian Capital, a retail activist investment firm focused on protecting the interests of retail shareholders, and a shareholder of Snap Inc. publishes Open Letter to Board and Management, and Announces Snap Investor Town Hall On 4/6 at 7PM EST live on X,” (Apr. 1, 2026).

3: Spruce Point Capital Management Letter to Zoom Communications, Inc. (Apr. 24, 2026).

4: DICK’S Sporting Goods, Press Release, “DICK'S Sporting Goods to Acquire Foot Locker to Create a Global Leader in the Sports Retail Industry,” (May 15, 2025), . FactSet Data, Stock price declined 14.58% on May 15, 2025.

5: Starboard Value LP, “Starboard Value Issues Letter to News Corp Shareholders Regarding a Proposal to Eliminate the Company’s Dual-Class Share Structure at the 2024 Annual Meeting,” Nasdaq (Sept. 9, 2024).

6: Engine Capital LP Letter to UniFirst Corporation (Oct. 31, 2025).

7: Meta, “Founders Letter, 2021,” (Oct. 28, 2021).

8: Meta, Press Release, “Meta Reports Fourth Quarter and Full Year 2022 Results,” (Feb. 1, 2023).

9: Jonathan Ponder, “How Ownership Can Shape Outcomes,” MSCI (Aug. 19, 2025).