What’s the Golden Share?
Golden Share allows shareholders veto power on business charter amendments. Its holder can prevent another shareholder from taking more than a ratio of ordinary shares with special voting rights.
Profits and voting rights are equal for ordinary shares. These shares can also prevent a takeover.
Understanding Golden Shares
Public enterprises or governments can issue golden shares. A share has at least 51% voting rights. A firm can only issue golden shares by passing special resolutions and altering its memorandum and articles of organization. This document controls a company’s external relationships.
Golden shares were most popular in the 1980s, when the British government privatized enterprises to keep control. Other European and Soviet governments followed.
The U.K. has mainly utilized golden shares. Brazil and other nations employ golden shares to control state-owned enterprises. However, the European Union has primarily prohibited the use of golden shares by businesses and governments. The E.U. allows governments to safeguard essential services but not golden shares, which it considers unreasonable and disproportionate to enterprise and economic interests.
Pros and Cons of Golden Shares
With its newly privatized firms, the British government decided a golden share policy made sense. Golden shares would prevent aggressive takeovers, especially from outside. Public firms can maintain control over their interests against rivals using this method.
Golden shares were crucial for enterprises that shaped a nation’s economy, public policy, and security.
Golden shares have drawbacks. Golden shares offer the possessor too much influence, especially if it goes against other shareholders’ interests, say critics.
Examples of Golden Shares
Golden share companies include Embraer S.A. (ERJ). It builds commercial, military, and agricultural aircraft and provides aeronautical services. Since its founding, Embraer has been a private, state-owned enterprise. In 2000, it began listing its shares of stock. The Brazilian government has veto power due to its golden stake in the corporation.
The government approved Boeing’s purchase of the company’s commercial aircraft segment in 2019. According to MSN, Boeing withdrew from the $4.2 billion agreement in April 2020 after discussions failed. After the merger failed, Brazilian President Jair Bolsonaro said, “There is a golden share. Perhaps a new negotiation will begin with another company.”
The British Airports Authority (BAA) held Heathrow and Gatwick, another golden share example. In 1987, the British government privatized the corporation, keeping a golden stake. In 2003, an E.U. court declared the government’s airport authority share violated rules.
Conclusion
- Golden shares allow shareholders veto power on business charter amendments.
- Private or government corporations can issue golden shares with at least 51% voting power.
- The U.K. and Brazil have mainly employed golden shares to control state-owned companies.
