Golden Share: Controlling Stake in a Company

A golden share is a special type of share that provides its holder with certain key powers and typically ensures that the company remains under specific control, such as preventing foreign ownership.

Definition

A golden share is a special type of share that provides its holder with the ability to control at least 51% of the voting rights of a company. This share is often retained by governments, especially during the privatization of state-owned enterprises, to ensure that strategic companies do not fall into foreign or other unwanted ownership.

Historical Context

The concept of a golden share emerged prominently during the privatization waves in the late 20th century, particularly in the United Kingdom. The UK government used golden shares as a tool to maintain some degree of control over privatized entities, safeguarding national interests.

Types and Categories

• Government Retained Golden Shares: Shares retained by governments during privatization to maintain control over strategic companies.
• Corporate Golden Shares: Sometimes used by private corporations to maintain control over a subsidiary or a joint venture.
• Golden Shares in Mergers and Acquisitions: Used as a protective measure during mergers and acquisitions to prevent hostile takeovers.

Key Events

• 1980s UK Privatizations: The golden share concept gained traction during the privatization of British Airways, British Telecom, and other state-owned enterprises.
• European Union Legal Framework: The European Commission scrutinized and sometimes challenged the use of golden shares by EU member states, arguing it might contravene the principle of free movement of capital.

Detailed Explanations

Voting Rights and Control

A golden share often gives its holder special voting rights that surpass ordinary shares, ensuring that key decisions require the golden shareholder’s approval. This includes veto power over mergers, takeovers, and significant changes in company policy.

Legal Framework and Challenges

Golden shares have faced legal challenges, especially within the European Union, where they are sometimes seen as obstacles to free market principles. For example, the European Court of Justice has ruled against the use of golden shares in several cases, deeming them incompatible with the Treaty on the Functioning of the European Union (TFEU).

Importance and Applicability

Golden shares play a crucial role in maintaining national security and protecting strategic industries. They are applicable in sectors such as defense, telecommunications, and energy, where governmental control can be deemed necessary for national interests.

Examples

• British Aerospace: The UK government retained a golden share to prevent foreign ownership.
• Brazilian Embraer: The Brazilian government holds a golden share to maintain control over the aerospace company, protecting national defense interests.

Considerations

• Regulatory Compliance: Entities must ensure their golden share arrangements comply with international and national legal frameworks.
• Investor Sentiment: The existence of a golden share might deter some investors due to the added layer of governmental control.

Related Terms

• Ordinary Share: A type of equity ownership that represents residual ownership in a company.
• Preferred Share: A type of share that has preferential rights over ordinary shares in dividend payments and asset liquidation.
• Hostile Takeover: An acquisition attempt by a company or raider without the consent of the target company’s management.

Comparisons

• Golden Share vs. Ordinary Share: While ordinary shares provide proportional voting rights, a golden share offers veto power and control regardless of the proportion of equity.
• Golden Share vs. Preferred Share: Preferred shares provide financial benefits like fixed dividends, whereas golden shares confer strategic control.

Interesting Facts

• National Security: Golden shares are commonly found in defense sectors, helping prevent critical assets from foreign takeover.
• Strategic Value: Governments use golden shares to ensure continuity and stability in essential services.

Famous Quotes

“Power tends to corrupt, and absolute power corrupts absolutely.” – Lord Acton, highlighting the balance of power that a golden share can provide.

FAQs

Q: Can a golden share be sold?

A: Typically, a golden share is retained by its initial holder, such as the government, to maintain control and cannot be sold or transferred.

Q: How does a golden share affect company management?

A: A golden share usually grants its holder veto power over significant decisions, ensuring they align with strategic interests.

References

1. European Commission, “Golden Shares in Privatized Companies,” [link].
2. UK Parliament, “Privatization and Retained Shares,” [link].

Summary

The golden share is a critical financial instrument used to maintain control over key enterprises during and after privatization. Its significance spans regulatory, strategic, and national security dimensions, reflecting the necessity of safeguarding essential industries and services. Despite legal challenges, golden shares remain a vital mechanism for balancing market freedom with national interest.

This article has provided a comprehensive overview of the golden share, including historical context, types, key events, importance, and practical examples. For further exploration, refer to the provided references.