Shareholder Voting Power and Corporate Governance: A Study of Large British Companies

The pattern of ownership and control of British industry is unusual compared with most other countries in that ownership is relatively dispersed. Majority ownership by a single shareholder is unusual. It is not uncommon for the largest shareholding to be under 20 percent and in many cases much less than that. A similar pattern occurs in the USA. The question of voting power is the focus of this paper. Conventional analyses of control through voting use a 20% rule to identify a controlling bloc, either a single individual or institutional shareholder or a group voting together. Theoretical voting power of minority shareholding blocs is studied using a voting power index. This is applied to a model of ownership control described in Leech (1987) based on the definition of control used by Berle and Means (1932). 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 bloc of a few large shareholders working in concert, in almost all cases a voting bloc of the top six shareholdings combined could have working control whether or not it commanded a majority of the shares.