Voting Rights

The article, ‘Managerial ownership of voting rights’ was published in September 1984 by Harry De Angelo and Linda De Angelo (University of Rochester, Rochester, NY I462 7, USA). This Article discusses in detail the dual classes of common stock which include the common stock for voting rights and the common stock for residual cash flow distribution i.e. Dividends.

There are basically two reasons why managers hold common stock of companies;

1) Incentive to maximize company’s value

2) For voting rights, i.e. In order to increase their influence on the election of board of directors and the making of policies.

In this Article, a sample of 45 publicly held companies has been taken into account. These 45 companies have dual classes of common stock

cash flow per share given out to class 1 must be same as that paid to class 2.

Amongst these 45 firms, 21 firms had inferior voting rights, i.e. No vote in board elections. These are said to have ‘Voting-non-voting ownership structure’ Subsample. They might have zero votes in the election of board of directors, but they still are allowed to vote on crucially important matters such as mergers (but this too under state laws adjusted by articles of incorporation). 15 firms hold ‘Voting class Structure’ which involves the conduction of two elections in order to select the board of directors, in which the superior voting class elects most of the board. The rest of the 9 firms fall in the ‘Pooled voting’ category in which both superior and inferior classes vote, but the superior class has a greater say or their vote holds a more significant value. Inferior voting right is the publicly traded

The importance of such ownership across the range of public corporations, together with the extent of family involvement in this population, is interesting questions raised, but not resolved here.

There were four case studies presented in the article that indicate that the controlling stockholders of the firms have usually received greater payments as compare to those received by the minority stock holders in the time of acquisition of the dual class firms. It is indicated in these cases that in some of the organizations, a position of control is believed to have a greater economic value.

Although the article has highlighted this question through the cases that it has presented,

It has failed to answer this question, which is “Are control rights per se of economically significant value in a material number of other publicly traded