I wish I knew what voting rights were, but I’m too embarrassed to ask

When you buy shares in a company, they entitle you to a proportion of the profits via dividends. As well as that they usually – but not always – come with some other rights, including voting rights – the right to have a say in the running of the company.

If you invest in a company’s shares, you are entitled – through ownership of those shares – to certain rights. The right that shareholders tend to be most interested in, is the right to share in the future profits of the company. Owning a share will entitle you to a chunk of any dividend payouts, for example. However, there’s another important right – that is, the right to have a say in the running of the company.

Shareholders usually benefit from voting rights – that is, the right to attend Annual General Meetings, and to vote on certain corporate actions that will affect shareholders. For example, a shareholder will usually have the right to vote on big changes such as takeovers or mergers, or the right to vote in elections for board members. 

However, in recent years, some of the world’s most exciting companies have sold shares which offer fewer voting rights than other types of share in the same company. Big tech companies in particular often split their shares into different classes when going public.

For example, social media giant Facebook has “class A” shares and “class B” shares. Normal investors buy and sell class A shares, which have one vote per share. The class B shares are owned largely by Facebook founder Mark Zuckerberg, and come with ten votes per share. In 2017, social media company Snap took this a step further. The shares it sold to the public when it listed in New York, came with no voting rights whatsoever. 

Meanwhile, here in the UK, food delivery company Deliveroo plans to have two classes of share when it goes public shortly. The shares available to investors will carry one vote per share, while those owned by the founder will have 20 votes per share.

Founders argue that these different levels of voting rights insulate them from the short-termism of being a public company. In other words, they can pursue long-term strategies without the fear of being pushed out of their own companies due to a short-term run of weak performance.  

For now, shareholders seem content to put up with the inequality, in order to be able to share in the fortunes of these stocks. Whether that will last, should these companies face harder times, remains to be seen.  
To find out more about shareholder democracy in general, subscribe to MoneyWeek magazine.

Recommended

Should you buy Vodafone shares, or steer clear?
Share tips

Should you buy Vodafone shares, or steer clear?

Vodafone grew revenue by 4% and profit by 11% last year, and offers investors a 6.4% dividend yield. So should you buy Vodafone shares? Rupert Hargrea…
17 May 2022
2021 Château La Mascaronne rosé: a work of art from Provence
Wine

2021 Château La Mascaronne rosé: a work of art from Provence

This wine soars above all others with its grace, refinement and impressively long finish
17 May 2022
The UK jobs market is still red hot – but will it last?
UK Economy

The UK jobs market is still red hot – but will it last?

For the first time ever, there are more job vacancies than people to fill them, and wages are rising at a decent clip. But that might just be a tempor…
17 May 2022
Melrose Industries: a British manufacturer that is well-placed for recovery
Share tips

Melrose Industries: a British manufacturer that is well-placed for recovery

Melrose, the aerospace and automotive manufacturer, has been hit by the pandemic, but the shares are unduly cheap says David J Stevenson.
17 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022