ShmoopTube

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Principles of finance ah la shmoop ownership and control Okay

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back to the friendly folks at the sauce company it's

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Time to form the board of directors Will these guys

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and gals are elected by the common stockholders But for

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protections sake reed has a contractually obligated board seat as

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part of his investment as long as he owns ten

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percent or more of the company Unless he wants to

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resign or is convicted of financial fraud But not if

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he just kills someone Financial regulatory laws air very uptight

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about thieves Not so much about murderers right Well the

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common stock has one key weapon in the protection of

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itself The common stock can vote In fact it is

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the common stock that hires the board decides keep policy

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issues and so on It answers should we raise money

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And oh the laws are extra picky about board control

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when a financing dilutes or could dilute common shareholders That

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is for things like convertible dead or preferred stock Common

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shareholders have specific control over whether or not that's cool

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for the company Two d'oh should we buy x y

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z corporation Or should we sell to google Should we

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Split our stock in one way or another Should we

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serve coffee or tea at the next annual meeting This

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last one's Not technically a financing activity Unless there's a

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boston sized part there are two flavors of voting in

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the land of common stock Cumulative and statutory cumulative just

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kind of somehow sounds cooler It allows teams to join

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forces and pull their votes for target candidates like they

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can pull their votes pick one or two people and

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just elect them If a shareholder has one percent of

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the common shares outstanding of a company and cumulative voting

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is allowed and there are five candidates being elected that

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shareholder can vote effectively five percent of the total shares

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for any one candidate said graphically With blood and guts

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it looks like this cumulative voting helps the little guy

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to have a big presence or at least some say

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in how the company is run With only one percent

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of the shares the little guy can be felt as

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a five percent holder which makes him a relatively major

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player It also encourages boards to rotate seats gradually That

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is if there were seven seats coming up for election

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Well that one percent could feel like seven percent Which

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starts to get dangerous in a contentious board and company

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situation Right Well the other flavour is statutory voting which

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is just boring One share one vote Board members need

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a simple majority to be elected and well that's it

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Okay Say you're a rabble rouser who needs work on

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his putting in short game and mostly wedges from forty

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yards You don't want to slap to the annual meeting

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So you send in your proxy a virtual version of

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you being there with all the boxes filled out your

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an absentee voter in a proxy If it rains and

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you show up at the meeting the proxy forms air

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shredded and you can change your mind when the votes

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are called For Companies like to save money on coffee

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and cookies at the annual so they generally encouraged proxy

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voting by sending out eve i ts and toe asked

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for proxies and that's a proxy solicitation are well those

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solicitations have to first be stamped by the sec for

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the good housekeeping seal of approval I'ii disclosure is done

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properly All issues are vetted clearly and explain if things

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air contentious such that a block of shareholders wants the

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company to sell out to the man or the google

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or whomever than the proxy people legally must file their

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intent with the sec it's literally a crime to not

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do so and for good reason Companies don't want to

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be suddenly blindsided by a takeover that they couldn't prepare

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care for and the registration requirements are high Even the

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bankers advising a dissident group of shareholders must register with

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the sec to avoid the above problems Management's sometimes issues

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nonvoting stock or stock with inferior control writes the infamous

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super voting stock like it might have equal economic participation

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everything but not equal vote arrogant founders think that they

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have better knowledge of the markets than the markets do

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so they want to be able to control the company

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in various high impact conflict laden situations The new york

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times is perhaps the most famous of the disaster supervoting

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situations Supervoting control stock owned by the founding family made

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the company impossible for an outsider to buy for the 00:04:31.383 --> [endTime] last few decades and well here's their stock chart

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