atans1

One share, one vote; one person one vote

In Corporate governance on 10/10/2011 at 2:44 pm

As Parly is opening later today and what with most MPs elected via GRCs where the principle of using one’s vote to hold an MP accountable is badly diluted, I tot I should blog on shareholder democracy and its relationship to political democracy.

Shares without votes are not the conventional wisdom and make investors and corporate governance activists unhappy. Manchester United’s planned initial public offering in Singapore, where new shareholders may be offered a package of instruments that will entrench the Glazer family’s control, has attracted much criticism*. Many US companies break the one-share-one-vote principle (despite the US being called the home of shareholder democracy). Ford, Berkshire Hathaway, News Corporation, Google and LinkedIn,  all have two classes of shares. Manchester United has just thought-up an alternative by “stapling” nonvoting preference shares to regular voting ones. Bit like GRCs.

Juz like MPs in GRCs, reduced voting power are a problem if managers (in politics think government, ministers or MPS) do stupid things or misbehave, or if takeovers arise. Two examples:

– News Corporation, where Rupert Murdoch cannot be removed or checked despite poor governance.

– Playboy, where Hugh Hefner, the founder of Playboy, who used his control of voting shares to take the company private in 2010 for less than the owner of rival Penthouse said it would offer.

If shareholders have faith in management, then the power to vote is irrelevant. Berkshire Hathaway’s class A and B shares trade on par. Shareholders there don’t care if they don’t have the vote. Likewise in S’pore politics once. In the late 1960s, and in 1970s, the people so trusted the PAP that they were were happy to have a one party state. 

*Much unfair as investors are free to demand big discounts for getting non-voting preference shares that don’t pay fixed dividends and are not cumulative, making them like common shares without voting rights. No one is forcing the shares onto investors.

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  1. Would like to point out that Berkshire is not a good example for democracy because Buffett and his partner Munger, own most of the shares anyways. Even if class B shares have equal fractional rights and all the other investors joined together, they cannot outvote the pair.

    Non-voting preference shares are pretty common. If I am not mistaken, the preference shares issued by our three local banks are all non-voting as well. However, I do agree with you that trust in the management is important in such instances. The Glazers are hated in Manchester, and so I do not see why Singaporeans should trust them either.

    • One the issue of non voting pref shares, the ones currently listed on SGX have fixed returns and are cumulative. These in theory make them safer.

      The reports say that the MU pref shares do not have these charactweristics. They are more like ord shares but without the vote.

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