Understanding Voting Shares
Voting shares give the stockholder the right to influence key decisions in a company’s corporate policymaking. Typically, a company’s common stock represents these voting shares, while other classes of shares like preferred stock might not offer voting rights.
Key Highlights
- Voting shares offer investors a significant role in a company’s decisions, including electing the board of directors.
- They are crucial in approving or rejecting major corporate moves, such as mergers.
- Companies generally issue different classes of shares, with varying voting rights.
- Google and Berkshire Hathaway exemplify companies that differentiate shares by voting power.
How Voting Shares Operate
Owners of voting shares possess the capacity to impact a company’s strategic decisions. For example, during an acquisition offer, these shareholders have the power to vote on whether to accept the offer or not.
Shareholders typically receive communications requesting their votes on certain decisions. The act of voting doesn’t impact the value of their shares directly. However, outcomes of these votes can indirectly influence the company’s market value.
Unique Considerations
Activist investors often sway the owners of voting shares to support actions that align with their goals for the company.
During hostile bids, prospective buyers campaigned to sway voting shareholders, hoping to gather enough votes to change the company’s direction. This might lead to changes in the board of directors and, subsequently, in the company’s leadership.
If the board approves a sale, shareholders with voting shares must vote to finalize the deal. If the shareholders feel the offer undervalues the company, they can vote to reject it.
Various Types of Voting Shares
A company may issue different types of voting shares, each carrying varying levels of voting power. For instance, founders and top management might own shares granting multiple votes per share, while other shareholders might own shares providing one vote per share. Shares might also exist without any voting power.
These variations ensure certain stakeholders hold greater influence over corporate decisions. The market value of these shares might differ, especially after events like stock splits.
Voting Shares in Action: A Closer Look
Google: Google provides a prime example of multi-class shares. Class A shares (Ticker: GOOGL) offer voting rights, whereas Class C shares (Ticker: GOOG) do not. Additionally, Google’s non-traded Class B shares are held by insiders and carry supervoting rights, with each Class B share worth 10 votes.
Berkshire Hathaway: Warren Buffett’s Berkshire Hathaway also utilizes multiple share classes. Class A shares (Ticker: BRK.A) provide voting rights, whereas Class B shares come at a lower price but with minimal influence in company decisions.
Related Terms: common stock, preferred stock, acquisition, market value, activist investors, hostile bids.
References
- Bloomberg. “Why Google Is Issuing a New Kind of Toothless Stock”.
- Berkshire Hathaway. “Comparison of Berkshire Hathaway Inc. Class A and Class B Common Stock”.
