21-07-2025
Wise founders fight over two-tier share structure
It was a friendship that went on to spawn one of the UK's most successful companies of the past 15 years. Kristo Kaarmann and Taavet Hinrikus were both twentysomething Estonian expats working in London in 2010 and horrified by the fees charged by banks for sending money back home. Thus was born Transferwise, now Wise, an £11 billion cross-border payments business that has made billionaires of them both.
However, the friendship this week soured into open hostility as Hinrikus accused Kaarmann, the chief executive, of shoddy tactics in trying to push through on the quiet an extension to a dual share structure that gives him a near stranglehold on all big decisions at the fast-growing cross-border payments group for another ten years.
In a letter reproduced on Monday by Wise, Hinrikus accused Kaarmann of endangering the reputation of Wise and contravening shareholder democracy by proposing a plan that would extend the current dual share structure by a further ten years. The detail had been 'buried' in a wider document about moving Wise's primary listing from London to New York.
Hinrikus was, he said, 'deeply troubled' by the plan, going on to lament the 'lack of transparency' and the 'contravention of shareholder democracy'. Shareholders had previously been 'expressly promised' when the company floated in 2021 that the dual class structure would be dismantled by July 2026.
The proposal 'risks eroding investor confidence, weakening shareholder democracy, and harming Wise's long-term valuation and reputation. Entrenching disproportionate power in the hands of a few sets a dangerous precedent — one that contradicts the values on which Wise built its public credibility,' Hinrikus wrote. He urged fellow shareholders to vote against the proposal unless it is amended and said he had support from several shareholders.
It was a brutal criticism from Hinrikus, who stepped back from day-to-day operations at Wise before the London listing, but was chairman until December 2021. He has since gone on to set up an angel-investing business with stakes in more than 150 disruptive start-ups and has a net wealth estimated at $1.3 billion by Forbes magazine.
Wise fired back a rebuttal, denying any lack of transparency and arguing that the dual-share structure often produced superior returns, especially among US technology companies that frequently adopted it. David Wells, chairman and a former finance director of Netflix, said shareholders were sounded out and had been 'overwhelmingly in favour' of the plan.
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Kaarmann, in a blog post, said many of Wise's shareholders were excited about the proposals, before adding: 'Some people see things differently. My co-founder Taavet expressed his reservations in a letter we shared today.' He said Hinrikus had been 'an important part of our journey for years' but 'no longer plays an active role at Wise'.
Through a mix of A shares and vote-heavy B shares, Kaarmann owns an 18.2 per cent economic interest in the company, but 54.7 per cent of the voting power, though this is capped at 49.9 per cent. Hinrikus owns an economic stake of 5.1 per cent, and 11.8 per cent of the votes.
His complaint is focused particularly on the 'bundling' of the proposals into a single vote on both the primary listing move from London to New York and a ten-year extension to the current dual shares structure. Hinrikus is proposing a change to the proposals to remove the interconnectedness so that shareholders could vote in different ways on each. It was 'entirely inappropriate and unfair' to combine the two issues in a single vote, he wrote.
The planned primary listing switch, first announced in June, had already sent shock waves through the London market, which is concerned that a trickle of listing switches already announced could burgeon into a serious problem for the London market and the ecosystem of bankers, brokers, lawyers and accountants that depends on it. Sir Pascal Soriot, chief executive of Britain's second-biggest listed company, AstraZeneca, is reportedly keen to move too.
• Wise value tumbles after revenue growth slows and profit dips
The row raises another talking point: many traditional UK investment houses dislike dual voting structures because they can give excessive power to incumbent managements. They argue that 'one share, one vote' is the optimum system. While recent changes to the listing rules have given more power to founders, traditional shareholders are sceptical and this week created a new lobbying group, the Governance for Growth Investor Campaign, to push the case to defend shareholder interests and promote good governance. Others argue that founder-friendly share structures give entrepreneurs the breathing space to make decisions for the long run without being pressured into short-term compromises.
Concerns about the governance of Wise have already been highlighted after Kaarmann was named as a deliberate tax defaulter by HM Revenue & Customs after failing to pay a tax bill in 2017-18 and fined £366,000. He explained he fell behind with his paperwork. He was then fined £350,000 last year after an investigation by the Financial Conduct Authority over his fitness to run a big financial institution, but no further action was taken.
The company has been a phenomenon, slashing the cost of cross-border payments for individuals and small firms and taking business from traditional banks. It boasted 9.8 million active users in the latest quarter who together hold balances with it of £22.9 billion, up 31 per cent. It employs 2,200 people in Tallinn and 1,000 in London. It has plans to expand into the US, which was one reason given for the listing switch because it would raise the company profile in America, as well as the attraction of higher liquidity in the shares and a larger pool of potential investors to attract. Until recently, Wise had been expected to apply to join a different investment category in London so that it would qualify for inclusion in the FTSE 100. That will not now happen.
The proposal requires a majority of both A and B shareholders, as well as a 75 per cent 'super-majority' in the value of shares voted. This threshold, Hinrikus said, had been lowered, a fact he noted was only disclosed 'deep within the body of the [scheme circular] document'. The arrangement would be through a court-sanctioned scheme of arrangement. Proxy voting agencies including Glass Lewis and ISS have given the proposal their blessing.
The biggest outside shareholder is the Edinburgh technology investment house Baillie Gifford with an 11.4 per cent economic interest and 10.2 per cent voting interest. Others include the US tech investor Andreessen Horowitz and Jupiter Fund Management. The voting is due to take place at shareholder meetings on Monday July 28.
