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Sina Shows Its Disregard for Shareholders

What’s the best way to ensure victory over your opponents? Change the rules in the middle of the game, of course. Nasdaq-listed Sina SINA 4.48% will agree.

The company, which controls a Twitter -like service called Weibo in China, this week said it had issued supervoting preference shares to its chairman, Charles Chao, that effectively give him control of 56% of its voting rights, up from 11% previously. The move came just days after Sina won a proxy fight against U.S. activist investor Aristeia Capital. The $3 billion hedge fund had sought changes that it said would unlock value from Sina’s 46% stake in Weibo, which is also listed in the U.S. Weibo’s shares have almost tripled this year, while those of Sina have doubled.

Sina says giving its chairman more voting rights will prevent future proxy fights that could be “costly, time-consuming and disruptive.”

wu hong/European Pressphoto Agency

But it is hard to see how this step fits with Sina’s pledges to “hold itself to the highest corporate governance standards.” Essentially, Sina has stripped its shareholders—which include big mutual funds like Schroder and BlackRock, according to FactSet—of having any effective say in the company’s running.

Companies with multiple classes of shares that help founders maintain control of voting while holding less of its capital have become popular in recent years, especially among technology companies. The most extreme example is Snap Inc., which issued shares with no voting rights in its IPO in March.

But at least Snap’s investors were warned. What Sina did is even worse: It took away shareholders’ rights without getting their consent. Sina said the move is in accordance with its articles of association; it is incorporated in the Cayman Islands. Whatever the legalities, Sina has clearly acted solely to entrench management’s power. Investors who bought the stock hoping to put pressure on the company to improve its business have been left hanging—Sina’s stock fell 13% Tuesday before recouping some of those losses Wednesday. Corporate democracy, meanwhile, has taken another hammer blow.