Voting Power

Voting Power is the right of a shareholder to vote on matters of corporate policy. Think of it as your democratic voice in the companies you own. For every share of stock you hold, you typically get a certain number of votes to influence key decisions. This includes electing the board of directors (the people who are supposed to represent your interests and oversee management), approving or rejecting major corporate actions like mergers and acquisitions, and having a say on executive compensation plans. The traditional and most shareholder-friendly principle is “one share, one vote,” where your influence is directly proportional to your economic stake in the company. However, the investment world is full of twists. A growing number of companies, particularly in the tech sector, issue different classes of shares, creating a system where some insiders have “super-voting” rights, effectively giving them control even without a majority economic ownership. For a value investor, understanding who holds the voting power is crucial, as it reveals who is truly in the driver's seat.

It's not just about the numbers on a balance sheet; it's about power and control. A true value investor digs deep into a company's corporate governance structure, and voting power is at its very heart.

The legendary investor Warren Buffett has long championed a simple, equitable principle: one share, one vote. Why? Because it perfectly aligns economic interest with control. If you own 10% of the company's shares, you have 10% of the voting power. This democratic setup ensures that the company's management is accountable to all its owners, not just a select few. If the leadership team makes a series of boneheaded decisions that destroy value, the collective body of shareholders can vote to replace them. This accountability is a powerful safeguard for your investment. It creates a level playing field where every dollar invested carries the same weight in the boardroom.

Welcome to the wild side of voting power. Dual-class shares are a structure where a company issues different types of stock with unequal voting rights. Typically, one class of shares (often called Class B) is held by founders, family members, and early executives, carrying immense voting power—sometimes 10 or even 20 votes per share. The other class (Class A) is sold to the public and comes with just one vote per share, or sometimes none at all. Think of it like this: you and a founder might both own a share worth $100, but the founder's vote counts 10 times more than yours. This allows insiders to maintain iron-fisted control over the company even if they sell off most of their economic stake. Famous examples include Meta (Facebook), Alphabet (Google), and Ford.

Proponents argue that this structure shields visionary founders from the short-term pressures of Wall Street. It allows them to pursue long-term, innovative strategies without fear of being ousted by impatient investors or targeted in a hostile takeover. The idea is that you're betting on the genius of the founder, and this structure lets them work their magic unhindered.

For a value investor, this is a major red flag. The risks are significant:

• Lack of Accountability: If a founder with super-voting shares starts underperforming or making reckless bets, public shareholders are essentially powerless. You can't vote them out. Your investment becomes a ride-along with a driver you can't fire.
• Misaligned Interests: It creates a situation where insiders can make decisions that benefit themselves at the expense of public shareholders. This might include excessive pay packages, self-serving acquisitions, or preventing a sale of the company that would be lucrative for everyone else.
• Entrenchment: The founding team can become entrenched, insulated from any real consequences for poor performance. This is the opposite of the shareholder-focused governance that value investors cherish.

Before you click “buy,” do your homework. Understanding a company's voting structure is a non-negotiable step in your due diligence.

• Where to Look: This information is not hidden. You can find a detailed breakdown of the share classes and their respective voting rights in a company's annual report (the Form 10-K in the U.S.) or its initial prospectus. Look for sections on “Common Stock,” “Capital Stock,” or “Description of Securities.”
• Weigh the Trade-Off: Investing in a company with dual-class shares is a calculated risk. You must ask yourself: Is the leadership team so exceptionally talented that it's worth surrendering my rights as an owner? Sometimes, the answer might be yes. But often, you're better off investing in companies where management is fully accountable to you, the shareholder.

Ultimately, remember that when you buy a stock, you're buying a piece of a business. Voting power determines how much say you actually have in that business. Don't give it away lightly.