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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
What is a dividend yield?Videos Learn what a dividend yield is and what it can tell investors about a company's plans to return profits to its investors.
-
High earners to pay nearly £2000 more in tax due to fiscal dragVideos The government froze tax thresholds, which will drag employees into higher tax bands as wages rise with inflation. We explain what fiscal drag is, and how to avoid it.
-
What is a deficit?Videos When we talk about government spending and the public finances, we often hear the word ‘deficit’ being used. But what is a deficit, and why does it matter?
-
Too embarrassed to ask: what is moral hazard?Videos The term “moral hazard” comes from the insurance industry in the 18th century. But what does it mean today?
-
Too embarrassed to ask: what is contagion?Videos Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
-
Too embarrassed to ask: what is a marginal tax rate?Videos Your marginal tax rate is simply the tax rate you pay on each extra pound of income you earn. Here's how that works.
-
Too embarrassed to ask: what is stagflation?Videos Traditionally, economists and central bankers worry about inflation or recession. But there is one thing worse than both: stagflation. Here's what it is
-
Too embarrassed to ask: what is the metaverse?Videos The term “metaverse” sounds like something out of a science fiction novel (and it is). But what does it actually mean?
