Golden Share

Introduction

When it comes to corporate governance, there are various mechanisms that can be put in place to protect the interests of different stakeholders. One such mechanism is the use of a “Golden Share.” In this article, we will explore what a Golden Share is, how it works, and its significance in the world of finance and corporate governance.

What is a Golden Share?

A Golden Share is a special type of share that grants its holder certain rights and privileges that are not available to ordinary shareholders. These shares are typically held by a government, a founding shareholder, or a strategic investor, and they often come with specific veto powers or additional voting rights.

The term “Golden Share” originated in the United Kingdom in the 1980s when the government used it as a tool to protect national interests in privatized companies. Since then, the concept has gained popularity and has been adopted by various countries around the world.

How Does a Golden Share Work?

A Golden Share is designed to give its holder significant control over certain decisions within a company. The specific rights and privileges associated with a Golden Share can vary depending on the company and the agreement between the shareholders.

Some common features of a Golden Share include:

• Veto Power: The holder of a Golden Share may have the power to veto certain decisions, such as changes to the company's articles of association, mergers and acquisitions, or the appointment of key executives.
• Additional Voting Rights: Golden Shareholders may have the ability to cast more votes per share compared to ordinary shareholders. This gives them a greater influence over important decisions.
• Protection of National Interests: In some cases, a Golden Share may be used to protect national interests, such as ensuring that critical infrastructure or strategic industries remain under domestic control.

It's important to note that the specific rights and privileges associated with a Golden Share can vary widely. The terms and conditions are typically outlined in the company's articles of association or a separate agreement between the shareholders.

Examples of Golden Share Usage

Golden Shares have been used in various industries and countries to protect specific interests. Here are a few examples:

1. Defense Industry

In the defense industry, governments often hold Golden Shares in companies that are involved in the production of military equipment or sensitive technologies. These shares give the government the power to block any foreign takeover attempts or prevent the transfer of critical technologies to other countries.

For example, BAE Systems, a British defense company, has a Golden Share held by the UK government. This share gives the government the ability to veto any changes to the company's articles of association, ensuring that the company remains under domestic control and that national security interests are protected.

2. Energy Sector

In the energy sector, Golden Shares have been used to protect national resources and ensure energy security. For instance, in 2007, the Russian government introduced a Golden Share in Gazprom, the state-owned gas company. This share grants the government veto power over any major decisions that could impact the country's energy sector.

3. Privatized Companies

Golden Shares have also been used in privatized companies to protect public interests. For example, when British Airways was privatized in the 1980s, the UK government retained a Golden Share. This share allowed the government to protect landing slots at Heathrow Airport, ensuring that the national carrier had priority access to these valuable assets.

The Significance of Golden Shares

Golden Shares play a crucial role in corporate governance by providing a mechanism to protect specific interests and ensure that important decisions align with the objectives of the shareholders. They can be particularly valuable in industries where national security, strategic resources, or public interests are at stake.

Some key benefits and implications of Golden Shares include:

• Protection of National Interests: Golden Shares allow governments to safeguard national interests by retaining control over critical industries or infrastructure.
• Prevention of Hostile Takeovers: Golden Shares can be used to prevent hostile takeovers by giving the holder veto power over major decisions that could impact the company's ownership or control.
• Enhanced Influence: Golden Shareholders have a greater influence over important decisions due to their additional voting rights or veto powers.
• Investor Confidence: The presence of a Golden Share can provide reassurance to investors, as it demonstrates that certain interests are protected and that decisions are made in line with the broader objectives of the shareholders.

Conclusion

Golden Shares are a powerful tool in corporate governance that provide certain shareholders with special rights and privileges. They are often used to protect national interests, prevent hostile takeovers, and ensure that important decisions align with the objectives of the shareholders.

While Golden Shares can be valuable in specific industries and circumstances, they also raise questions about corporate governance and the balance of power between different stakeholders. Striking the right balance is crucial to ensure that Golden Shares are used responsibly and in the best interests of all parties involved.

As the world of finance and corporate governance continues to evolve, the use of Golden Shares is likely to remain an important topic of discussion and debate.