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

George Iacobescu: the man who transformed London
People

George Iacobescu: the man who transformed London

George Iacobescu, the man who – quite literally – put Canary Wharf on the map, is stepping back from his executive role. He will be a tough act to fol…
1 Aug 2021
How the government can give our start-up businesses a hand up
UK Economy

How the government can give our start-up businesses a hand up

Government cash might be nice, but there are better things it could do for start-up businesses, says Matthew Lynn
1 Aug 2021
What next for Haiti after its president was assassinated?
Global Economy

What next for Haiti after its president was assassinated?

Haiti, the poorest country in the Americas, has had more than its share of turmoil over the years. Its latest president was assassinated in July. Is a…
31 Jul 2021
The charts that matter: bitcoin rises and a mixed week for tech
Economy

The charts that matter: bitcoin rises and a mixed week for tech

Tech stocks suffered a volatile week. Here’s how it affected the charts that matter most to the global economy.
30 Jul 2021

Most Popular

Why the UK's 2.5% inflation is a big deal
Inflation

Why the UK's 2.5% inflation is a big deal

After years of inflation being a financial-assets problem, it is now an “ordinary things” problem too, says Merryn Somerset Webb. But central banks st…
16 Jul 2021
The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism
Economy

The MoneyWeek Podcast: Asia, financial repression and the nature of capitalism

Russell Napier talks to Merryn about financial repression – or "stealing money from old people slowly" – plus how Asian capitalism is taking over in t…
16 Jul 2021
Cryptocurrency roundup: Twitter founder’s “DeFi” platform
Bitcoin & crypto

Cryptocurrency roundup: Twitter founder’s “DeFi” platform

In crypto this week: regulators are getting worried; Jack Dorsey’s bitcoin DeFi platform; and dogecoin’s co-founder lambasts cryptocurrencies.  Salon…
16 Jul 2021