HOW TO CONTROL MORE THAN YOU OWN

If you’re investing in companies or partnering with businesses

Families manage to control large corporations, even with relatively small ownership stakes.

In this newsletter, we will explore two key mechanisms through which they achieve such control: shares with extra voting rights and pyramid structures.

When we looked at corporate headquarters, we often found that a few big shareholders have substantial control. Surprisingly, many of these shareholders are part of a family. So how can a few families control so much.

Shares with Extra Voting Rights

A share typically gives you two rights: cash flow rights (the right to dividends) and voting rights (the right to vote on important matters, like board member selection or approving acquisitions). However, some families hold shares that come with more voting power than others.

• A family owns 100% of a family firm. This firm owns 80% of a parent company, which in turn owns 40% of a business. So, the family technically owns 32% of the business (80% x 40%).
• However, when the voting rights of these shares are considered, the equation changes. The parent company holds 60% of the voting rights in the business.
• Now, by owning 80% of the parent company, the family effectively controls 48% of the votes in the business, even though they only own 32% of the shares.

In this way, the family’s voting power outstrips their actual ownership, giving them disproportionate control over business decisions.

Pyramid Structures

Another method for families to exert control is through a pyramid structure. In this structure, ownership of a business flows through a chain of companies. The family’s ownership is not direct but rather goes through another company, like the parent firm in the example above.

• While the family directly owns 32% of the shares, they can control 60% of the voting rights due to their ownership of the parent company.
• Why? Because the family dominates the votes at the parent company level, where they own 80% of the shares. This allows them to dictate what happens at the parent company, which in turn controls all 60% of the votes that the parent company has in the business.

Thus, while they own 32% of the shares and 48% of the voting rights, through the pyramid structure, the family controls a full 60% of the votes.

Control Beyond Ownership

Families can exert far more control than their actual ownership might suggest. They start with 32% of the shares, which translates to 48% of the votes thanks to extra voting rights. Through pyramid structures, they control 60% of the votes. This allows them to effectively steer the company’s direction without owning a majority stake.

This combination of extra voting rights and pyramid structures shows how families can control more than they own, maintaining their grip on power across generations.

Why This Matters to You

For investors or entrepreneurs, this strategy highlights that ownership is not always equivalent to control. If you’re investing in companies or partnering with businesses, understanding these dynamics could help you spot who really controls and why their decisions could impact your returns or growth.

For aspiring entrepreneurs and business leaders, the pyramid structure teaches a crucial lesson about leveraging indirect control. You don’t need to own everything to influence everything. Understanding how this works can give you insights into corporate structures and teach you how to navigate power in business.

• Investors: Knowing how power is distributed can help you make smarter investment choices. It’s not just about who owns the most shares but who controls the business decisions that could affect the value of your investment.
• Business owners: You can learn to build your own strategic structures that allow you to control your company’s direction, even when you’re bringing in outside investors or partners.
• Entrepreneurs and start-ups: These strategies teach you how to retain control of your business as you expand, even if you don’t have the majority ownership.
• Curious minds: This is a guide to behind the scenes of how wealth and influence are maintained in powerful families across generations. It also reveals how corporate structures are designed to amplify control beyond simple ownership percentages.

Note:

Families can control much more than they own using two strategies: shares with extra voting rights and pyramid structures. This allows them to keep decision-making power in their hands while holding smaller ownership stakes. These tactics don’t just apply to large corporations they’re relevant to anyone interested in corporate power, whether you’re investing, running a business, or trying to understand how the corporate world really works.

In our next edition, we’ll explore more strategic financial structures and how they shape business success.

Best regards,

Folashade Olajobi

Utter Sales Team