Hi all, HN newbie here :). I was invited as a YC finalist back in April for our business which revolves around measuring shareholder control. Some of you told me you thought the community would find the link interesting, so I’m happy to oblige:<p>http://www.rotarygallop.com/2/post/2012/06/ownership-and-control-at-square.html<p>While the headline is Control at Square, I hope as fellow entrepreneur’s you’ll takeaway a few more broad points:<p>-Unless it is zero or greater than 50% , your percentage ownership reveals exactly nothing about your control.<p>-Sophisticated entrepreneurs and venture capitalists know this much, which is why they often advise letting control take care of itself. What they don't know is that the story doesn’t end there. (Almost no one knows this including activist’s investors I've worked with who take over companies for a living.)<p>-Control is not soft and fuzzy. It is definable, measurable, and manageable. Just like all the other metrics that drive your business, you can measure it, make decisions and move on.<p>Talk to me in the comments!
When I read this headline, I interpreted it to mean Jack owns 28.3% of the shares, but that his class of shares has greater voting rights, and so he has 75% of the votes (a majority - similar to Zuckerberg).<p>However, that's not what the author means by "control". He means the chance that a shareholder vote goes Jack's way, under the very large assumption that every other shareholder votes independently at random.<p>That doesn't seem a very meaningful statistic, especially if there are other groups of shareholders with shared interests (for example VCs may be more likely to have goals in common, and would be likely to vote their shares on a big issue together.)
This usage of the word 'control' in this article seems very different from how it is typically used in the tech industry, even misleading.<p>Normally when we're talking about a minority shareholder having control, it is as a result of multiple share types with different voting rights (as in Facebook, Google, News Corp, etc.).<p>The assumptions also should be really clearly labelled, to also avoid misleading people. "there is an assumption that each shareholder is as likely to vote one way as another" is a huge assumption that is essentially based on zero information, whereas information is typically available for a particular company. It's worse than the assumptions behind options pricing models using Gaussian (so-called 'normal') distributions, imho.
I would need to see a more solid argument that control could come own to the odds of winning a vote. My hunch is that "the odds" would become mostly irrelevant when it came to a contentious topic.
I was CIO for PIRC.co.uk for some years and this is a fascinating topic, and I wish I had more time for this.<p>I assume you are using Banzhaf Indexes (If I spelt that right!) to determine the "swing vote" power.<p>I have long thought there is potential for individual investors in say pension funds to be allowed to vote their 'beneficial' (#) holding their way - so the controversial measures start to become more democratic. One day I will persuade a pension fund to try this, but that might just play havoc with your analysis :-)<p>Out of interest, how much of say the Dow have shareholders that hold 'disproportionate' power ? _ say 10% more influence than their vote count would suggest?<p>Good luck !<p>(#) I don't think the term I mean exists.<p>edit: * -> # to avoid italics
Control is obviously closely linked to share ownership, in the sense that where ownership is over a certain threshold you will be able to exercise a much greater degree of control than below that threshold. For example, the 51/49% split, but also, in the UK, where you have power of veto over major decisions requiring a special resolution with 25% or more.<p>However, I would be interested here to understand how two people with different shareholdings are able to exercise equivalent levels of control (again on the assumption that each share attracts one vote).<p>This assumes that control is being assessed on a pure basis without taking into consideration the psychology at play between different shareholders.
Thank you everyone for the Up votes and the conversation! We reached six or seven on HN on the same say Seth Godin sent out a blog post mentioning how unlikely it is to reach the front page of HN. That was a treat!<p>I'd love to keep it going, but its late here (I'm traveling in Holland at the moment). So I think what I'll do is work on a post to try to address the most common questions and get back tomorrow.<p>As a HN newbie I would appreciate advice on whether it is better to post this in the comments, or start a new post.
So control is unrelated to ownership; does this change the mechanics of companies based on their type? (C or S corps, LLC... etc) For instance, I thought ownership in an LLC reflected control as well.<p>So if votes count with equal weight, then letting other people in to the "ownership" of a company could be disastrous to the founders. A third, less knowledgeable but opinionated, party in the voting could totally destabilize the company if it threw its weight around.<p>This seems counter-intuitive.
This is flat-out wrong. You are not talking about "control", which has specific meanings in corporate and tax law. You are talking about "likelihood of control" or some other concept that is somewhat related to control but is not "control" in the meaning as it is used by everyone else.