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Shareholder Voting Power and Ownership Control of Companies

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  • Dennis Leech

    (Department of Economics, University of Warwick, Coventry, England)

Abstract

The pattern of ownership and control of British industry compared with most other countries in that ownership is relatively dispersed. Typically the largest shareholder in any large listed company is likely to own a voting minority of the shares. Majority ownership by a single shareholder is unusual. It is not uncommon for the largest shareholding to be under 20 percent in many cases it is much less than that. A broadly similar pattern is observed in the USA. á Two inferences about corporate governance are conventionally drawn from this, following the early work of Berle and Means: (1) All but the very largest shareholders are typically too small to have any real incentive to participate in decision making; (2) All but the very largest shareholdings are too small to have any real voting power. The question of voting power is the focus of this paper. Conventional analyses use a rule of thumb of 20%, assuming shareholders to be fundamentally passive in relation to the running of the company, whatever their style of investment management, unless one of them is above this figure. The London stock Exchange defines a controlling holding to be one greater than 30 percent. Much empirical work uses declarable stakes, which in the Uk are those of 3 percent or more, and disregards anything smaller assuming it to be powerless. In fact, however, a 1% stake in the 100th largest company( Smiths Industries) is worth about ú 29 million, which suggests its owner has strong incentives to be active, and might wish to use his voting power. á Theoretical voting power of minority shareholding blocks is studied using the game-theoretic idea of voting power indices. This is applied to a model of ownership control based on the definition of control used by Berle and Means in their classic study. The results give support for use of a 20 percent rule in many cases but not all. Also they support the idea that many companies are potentially controlled by a block of a few large shareholders working in concert.

Suggested Citation

  • Dennis Leech, 2002. "Shareholder Voting Power and Ownership Control of Companies," Homo Oeconomicus, Institute of SocioEconomics, vol. 19, pages 345-371.
    • Handle: RePEc:hom:homoec:v:19:y:2002:p:345-371
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    Cited by:

    1. Hamadi, Malika & Heinen, Andréas, 2015. "Firm performance when ownership is very concentrated: Evidence from a semiparametric panel," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 172-194.
    2. Renneboog, L.D.R. & Trojanowski, G., 2005. "Patterns in Payout Policy and Payout Channel Choice of UK Firms in the 1990s," Discussion Paper 2005-22, Tilburg University, Center for Economic Research.
    3. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    4. Renneboog, L.D.R. & Trojanowski, G., 2005. "Control Structures and Payout Policy," Other publications TiSEM a82281ef-f247-479f-a0e3-1, Tilburg University, School of Economics and Management.
    5. T. Biebuyck & Ariane Chapelle & Ariane Szafarz, 2002. "Les leviers de contrôle des actionnaires majoritaires," Working Papers CEB 03-001.RS, ULB -- Universite Libre de Bruxelles.
    6. Sreejith Das, 2011. "Criticality in games with multiple levels of approval," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 37(3), pages 373-395, September.
    7. Levy, Marc, 2011. "The Banzhaf index in complete and incomplete shareholding structures: A new algorithm," European Journal of Operational Research, Elsevier, vol. 215(2), pages 411-421, December.
    8. Shanti Chakravarty & Anthony Dobbins & Lynn Hodgkinson, 2013. "Poverty of Agency Theory and Poverty of Managerial Practice: The Royal Bank of Scotland Fiasco," Working Papers 13013, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    9. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.

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