Voting Rights

Voting Rights are the power granted to a shareholder to have a say in a company's major decisions. Think of it as your democratic right within the corporation you co-own. When you buy a share of a company's stock, you're not just buying a piece of its future profits; you're often buying a voice in its future direction. This right is fundamental to the concept of corporate governance, which is the system of rules and practices by which a company is directed and controlled. Shareholders exercise these rights primarily at the company's annual meeting, either in person or, more commonly, by casting a proxy vote. The most common decisions put to a shareholder vote include electing the board of directors (the very people hired to represent shareholder interests), approving major corporate actions like mergers and acquisitions, authorizing the issuance of new shares which can dilute your ownership, and approving changes to the company's charter or articles of incorporation. In essence, voting rights are the primary tool shareholders have to hold management accountable and ensure the company is run in their best interest—the creation of long-term value.

For most ordinary investors, the principle is refreshingly simple: one share, one vote. If you own 100 shares of a company, you get 100 votes. If an institution owns 10 million shares, they get 10 million votes. However, since most of us can't jet off to attend every annual shareholder meeting, we exercise our rights through a proxy vote. Weeks before the meeting, the company will send you (or your broker) a packet of information, including the annual report and a proxy statement. This document is crucial. It details the issues up for vote and, importantly, includes the board's recommendations. You can then fill out a proxy card (online these days) to:

• Vote for the board's recommendations.
• Vote against them.
• Abstain from voting.
• Or, you can authorize someone else—the “proxy”—to vote on your behalf according to your instructions.

Pro Tip: Don't just toss the proxy materials! Reading the proxy statement is one of the best ways to understand the key issues facing a company and how management's interests align (or don't align) with yours.

Here’s where things get interesting. Not all shares are created equal. Many companies have complicated structures that concentrate voting power in the hands of a select few, a critical factor for any value investor to analyze.

A dual-class share structure is a setup where a company issues different classes of stock with different voting rights. This is a popular way for company founders and insiders to maintain control without owning a majority of the company's equity. A classic example is Alphabet Inc. (Google).

• Class A Shares (GOOGL): Traded publicly, each share gets one vote.
• Class B Shares: Held by founders and early insiders, each share gets 10 votes.
• Class C Shares (GOOG): Also traded publicly, these shares have zero voting rights.

This structure means that founders Larry Page and Sergey Brin can control the company's destiny even though they own a minority of the total shares. While this can provide stability and a long-term vision, it also means that public shareholders have very little power to challenge management if they disagree with their decisions.

Besides dual-class common stock, companies can also issue shares with limited or no voting rights.

• Non-Voting Shares: As the name implies, these shares give you an economic interest in the company but no say in its governance.
• Preferred Stock: This is a hybrid security that's part stock, part bond. Holders of preferred stock usually receive a fixed dividend, but they typically have no voting rights unless the company fails to pay their promised dividends.

For a value investor, analyzing a company's voting structure is just as important as analyzing its balance sheet. It’s a direct window into the quality of its corporate governance.

The great investor Warren Buffett has often said he looks for businesses run by able and honest managers. Voting rights are the mechanism that keeps managers honest. When managers know that dissatisfied shareholders can vote them out, they are far more likely to focus on sustainable, long-term value creation. When voting power is disconnected from economic ownership, it can exacerbate the agency problem—the inherent conflict of interest between a company's management and its stockholders.

A structure that heavily dilutes or eliminates the voting power of public shareholders should be seen as a potential red flag. It asks you, the investor, to place immense and permanent trust in a small group of insiders. You're betting that their interests will always align with yours. Does this mean you should never invest in a company with a dual-class structure? Not necessarily. Some founder-led companies with these structures have created tremendous value. However, it means you must perform extra due diligence. You must be exceptionally confident in the integrity, skill, and vision of the controlling party. In the world of value investing, you want to be treated as a partner in the business, not as a passive bystander. Your vote is your power—know how much of it you actually have before you invest.