Voting Shares

Voting shares represent a claim on part of a company’s capital and come with voting rights attached. These shares are a type of equity stock and are often referred to as “common shares” or “ordinary shares” in different jurisdictions. While the primary advantage of owning voting shares is the ability to vote on corporate matters, they also allow shareholders to benefit financially from the company’s performance through dividends and capital gains.

Overview

Voting shares are fundamental instruments in the corporate world, providing shareholders with a voice in crucial business decisions. This influence can be particularly significant during annual general meetings (AGMs) or extraordinary general meetings (EGMs), where shareholders vote on a variety of issues such as the election of the board of directors, mergers and acquisitions, and significant changes in corporate policies.

Types of Shares

In the realm of corporate finance, there are different types of shares:

1. Voting Shares (Common or Ordinary Shares):
   • Provide shareholders with the right to vote.
   • Typically, one vote per share.
   • Entitles shareholders to dividends, if declared, and residual claim over assets in the event of liquidation.
2. Non-Voting Shares:
   • Do not carry voting rights.
   • Often have higher dividend rights or other financial benefits to compensate for the lack of voting power.
3. Preferred Shares:
   • Generally, do not provide voting rights.
   • Have fixed dividends and priority over common shares in terms of dividend payments and claim over assets upon liquidation.

Importance of Voting Shares

Voting shares are vital because they allow shareholders to influence the governance and strategic direction of the company. This democratic aspect ensures accountability and can lead to better decision-making within the company. Major corporate governance issues that voting shareholders typically decide include:

• Election of Directors: Shareholders elect the board of directors, who are responsible for overseeing the management of the company.
• Approval of Major Transactions: Voting shares allow shareholders to vote on mergers, acquisitions, and other significant corporate transactions.
• Amendments to Corporate Charter: Any changes to the corporate charter or bylaws, which dictate the company’s internal rules, require shareholder approval.
• Executive Compensation: Shareholders may vote on executive compensation plans, including stock option plans, bonuses, and salaries.

Corporate Governance and Voting Shares

The mechanics of how voting shares influence corporate governance involve several layers, including:

• Proxy Voting: Shareholders unable to attend meetings can vote by proxy, designating another person to vote on their behalf.
• Cumulative Voting: In some jurisdictions, cumulative voting is allowed, enabling shareholders to concentrate their votes on a specific candidate or issue.
• Dual-Class Structures: Some companies issue multiple classes of shares with different voting rights. Typically, one class of shares will have enhanced voting rights, enabling founders or key stakeholders to maintain control.

Examples of Companies with Voting Shares

Alphabet Inc. (Google)

Alphabet Inc., the parent company of Google, employs a dual-class share structure. Class A shares (GOOGL) are publicly traded and come with one vote per share. Class B shares are held by insiders and come with ten votes per share, allowing founders Sergey Brin and Larry Page to maintain control over the company. Alphabet’s Investor Relations

Facebook, Inc.

Facebook (now Meta Platforms, Inc.) also follows a dual-class share structure. Class A shares (FB) have one vote per share, while Class B shares, generally held by Mark Zuckerberg and other insiders, have ten votes per share, granting them significant control over corporate decisions. Meta Platforms Investor Relations

Berkshire Hathaway

Berkshire Hathaway, led by Warren Buffett, has both Class A (BRK.A) and Class B (BRK.B) shares. Class A shares have significantly more voting power than Class B shares, with each Class A share convertible into 1,500 Class B shares. Berkshire Hathaway Investor Relations

Implementation in Trading and Investing

When analyzing voting shares in the context of trading and investing, a few points must be considered:

Valuation and Market Perception

• Market Premium: Voting shares can sometimes trade at a premium compared to non-voting shares due to their governance influence.
• Investor Sentiment: The trading volume and demand for voting shares often reflect investor confidence in the company’s governance.

Strategies

• Activist Investing: Investors, or groups of investors, accumulate significant voting shares to influence corporate policies or strategic direction.
• Arbitrage Opportunities: Traders can exploit price discrepancies between voting and non-voting shares.

Risks

• Concentration of Power: Dual-class structures can result in a concentration of power among a few individuals, potentially leading to governance issues.
• Liquidity Concerns: Voting shares may exhibit different liquidity characteristics compared to non-voting shares, affecting trading strategies.

Conclusion

Voting shares play a critical role in the corporate governance landscape, providing shareholders with a say in the running of the company. They embody the democratic essence of corporate finance and ensure that those who have invested in the company can influence its strategic direction. This ability to vote on critical issues like the election of directors, mergers, and policy changes underscores the importance of voting shares as fundamental elements of a well-functioning market economy. As such, they continue to be a significant feature of equity investments, blending financial rewards with governance rights.