SpaceX Misses the Spot for Governance-Focused Investors

With its IPO only days away, we’ve already seen plenty demonstrating how SpaceX is testing the boundaries of what capital markets are prepared to handle.  

It’s a truly giant flotation for a relatively slim public stake in Elon Musk’s not-yet-profitable space transport, communications and AI company, seeking to raise up to $86 billion, which would value the business at $1.78 trillion. Opinions will vary on whether that’s realistic—especially given last week’s tech-led stock market falls—but it’s worth noting that my Morningstar colleagues estimate that valuation number to be too high by a whole $1 trillion.

Calling SpaceX “Elon Musk’s company” may be strange for a business about to go public, but it seems apt in this case. Musk has taken a range of steps to ensure SpaceX remains firmly within his control, and a number of institutional investors really aren’t happy about it. 

In particular, public pension asset owners’ concerns about corporate governance at SpaceX run deep. New York and California state pension leaders have called out the company’s governance structure as “novel and extreme.” Danish pension fund AkademikerPension has excluded SpaceX as a potential investment, denouncing its “catastrophic governance structure” and its “grossly overvalued” price tag. 

What’s got these asset owners so worked up? There are a few issues at SpaceX that are familiar from Musk’s other famous public company, Tesla TSLA.  

As the New York and California pension schemes note, these concerns include:

• a board seen as being too close to Musk to provide effective challenge on behalf of minority shareholders, 
• related-party transactions that raise concerns, and 
• a Texas domicile in which corporate laws are perceived to hand greater power to corporate managers at shareholders’ expense. 

All this reflects wider concerns about “a clear erosion of shareholder rights” that were picked up in the latest Morningstar Asset Owner Perspectives survey published in May. 

But it’s SpaceX’s dual class share structure that seems to be the focus of attention for institutional investors. 

Unlike Tesla, SpaceX intends to list with a dual class share scheme that grants Musk, alongside a few other SpaceX insiders, 10 votes per Class B share they hold instead of the single vote applicable to each Class A share.  

Dual class share schemes have long been a point of consternation for governance-focused institutional investors, and the issue seems to keep coming back onto the agenda.  

I first covered this issue five years ago as part of a response to a UK consultation on corporate governance, observing that dual class share schemes allow management to control a company with only a thin sliver of the equity. Musk has long expressed a desire for greater control of Tesla, so it appears that he has got his way this time with SpaceX.

As the chart above shows, with a 10:1 dual class share structure like the one being implemented at SpaceX, a founder can control more than 50% of the shareholder vote with only 9.1% of the equity. 

As US asset owner group The Council of Institutional Investors points out, asset owners often oppose dual class share structures as they “[enable] founders to wield control far beyond their equity stake, with little interference from boards they effectively control… this founder-knows-best approach can entrench management and blindside executives to a need for change in strategy.”  

Similarly, Caroline Escott, head of stewardship at UK asset owner Railpen and chair of the Investor Coalition for Equal Votes, recently noted in The Times: “The evidence also concludes that dual-class structures can damage long-term value creation: generally, companies without time limitations for dual-class structures underperform.” 

Where a dual class share structure is seen as necessary to retain unique management talent, the CII recommends that a sunset provision be included to return to a “one share, one vote” structure after a maximum of seven years.  

As Harvard Law School professor Lucian Bebchuk observes in his critique of governance at SpaceX: “Many investors regard Musk’s talents so highly that they might be willing to overlook this lack of constraints… [but] a strong belief that Musk is by far the best leader for SpaceX now and in the coming years does not imply that he will remain so forever.”

The SpaceX voting structure appears to take cues from those implemented at Alphabet GOOGL and Meta Platforms META, both of which also have a 10:1 voting ratio for Class B shares owned by founders. (Alphabet also has a third class of C shares with no voting rights which constitute around 45% of the company’s outstanding share capital.) 

Current voting structure and illustrative scenarios

Source: SEC filings (SpaceX registration document, Alphabet and Meta Platforms 2026 proxy statements). Data as of June 5, 2026. Note: Scenarios are illustrative and based on available public information on shareholdings. The Musk equity sale scenario above assumes Elon Musk sells all of his 849 million Class A shares in SpaceX and 44% of his 5,569 million Class B shares.

As the chart above shows, the holders of Class B shares (all company founders and directors in each case) would relinquish majority control of the company under a “one share, one vote” scenario.  

However, it is noteworthy that at SpaceX, Class B shares comprise a much greater proportion of the overall share count than the other two companies: It’s 44% at SpaceX, compared with 7% at Alphabet and 13% at Meta.  

The effect of this is such that in one scenario, shown on the chart, Musk could sell 51% of his total stake in SpaceX (worth as much as $445 billion at the company’s targeted valuation, or $195 billion at Morningstar’s analysts’ estimate) and still retain control of the company alongside the other Class B shareholders. 

Consequently, we regularly see very high support from independent shareholders for resolutions calling for the termination of dual class share schemes. 

As shown on the chart below, independent shareholder support for these proposals at Alphabet and Meta has ranged from 79% to 92% in recent years. That’s well above the 30% average support we’ve seen for governance-focused shareholder resolutions in the last three proxy years. 

Morningstar Large-Mid Cap index constituents, 2023 to 2026 proxy years

Source: Morningstar data and research, SEC filings. Data as of May 27, 2026. Note: Data shown is for proxy years ended June 30. Adjusted support includes votes by independent shareholders only.

When SpaceX holds its first public shareholder meeting, it’s likely that we’ll see similar opposition from shareholders to the dual class share scheme and other perceived governance shortcomings. However, we’ve noted before that Tesla has taken a highly idiosyncratic approach to scheduling shareholder meetings. It remains to be seen whether SpaceX will follow the same pattern.

There’s also a more systematic aspect to all this. It’s whether, and how quickly, SpaceX should qualify for inclusion in indexes that either dictate or strongly influence trillions of dollars of investor allocations. 

A number of asset owners have connected this issue to the governance concerns mentioned earlier. The New York and California pension fund letter puts it this way:  

“Precisely because SpaceX is… to become, through index inclusion, an unavoidable holding in our portfolios, its governance must at least adhere to the baseline protections upon which long-term institutional capital depends.”

Several index providers (including Morningstar and its newly acquired CRSP indexes, as well as FTSE Russell and Nasdaq) have amended their index methodology to fast-track inclusion of such mega-cap IPOs like SpaceX, and those still to come from Anthropic and OpenAI and others, given the unprecedented size of these first-time equity issuances.

The underlying principle here—one shared by my colleagues at Morningstar Indexes—is that matters of valuation, governance or profitability should not overshadow the purpose of a public market index, which is to best reflect the range of securities available for investors to buy. Fast-track inclusion, with index weightings adjusted for free float market capitalization, is seen by proponents of this view as an effective means of achieving that outcome.  

And, as my Indexes colleagues highlight in their recent paper, the true impact of these flotations will only be fully felt by the market felt once equity lock-up periods expire and the free float of the newly listed companies increases. As shown on the chart below, if the free float of the three mega-cap IPO companies—SpaceX, OpenAI and Anthropic—rose to 50%, there could be a greater-than-10x increase in their weighting in the US total market index. 

Source: Morningstar Indexes, PitchBook, CRSP Market Indexes, financial press. Data as of May 29, 2026. Note: Except for SpaceX, valuations are based on PitchBook valuation estimate; except for SpaceX, offering sizes are computed under the assumption of 5% float; SpaceX valuation and offering sizes are based on the reports in the financial press; estimates of the weight and changes in top 5 holdings in CRSP Market Indexes are based on March 2026 data.

Nasdaq, which is also floating SpaceX on its exchange, has decided to apply a 3x float multiplier which increases the weighting of low-free-float companies in its indexes.  

Opinions range on the merits and disadvantages of this treatment. However, it is an arithmetic certainty that calculating index weightings in this way generates upward momentum in a low-free-float company’s share price that would otherwise be absent, and that may or may not be offset by other factors. (This is because demand would increase for a limited quantum of available shares from portfolios that track, or are benchmarked against, those indexes—Invesco’s $470 billion QQQ Trust ETF being a prominent example.) 

Somewhat unexpectedly, S&P Dow Jones Indices decided last week to not amend their index inclusion requirements that set hurdles for length of public trading, minimum free float, and profitability. As a result, SpaceX will remain outside of S&P’s widely-tracked indexes for at least 12 months after the IPO, perhaps longer. S&P has previously endured questioning from investors on its perceived slowness to admit Tesla to its main market indexes due to the same criteria. It’s likely that those questions will resurface in the near future if SpaceX’s publicly quoted share price holds up. 

There’s a wide range of approaches being taken here, and no obvious “right” answer. But institutional investors will doubtless be watching closely to see the net effect of all this on SpaceX’s and the wider market’s performance in the coming months and years. And they will have concerns over whether any perceived success with SpaceX’s unconventional approach to corporate governance would serve as a signal to other companies to follow the same path.