With the election today as well as the recent flurry of announcement of stock splits, I thought, what better time to touch on the difference between the different equity share classes that exist, and what they mean to you as an investor?
That’s right – the company you may want to invest in may have several different share classes of stock available to you.
Why is that?
Well, in a nutshell, it allows for you to legally buy or sell a vote.
Wait….What?!
You read that correctly. In the equity markets, it is permissible to offer shares with voting OR non-voting rights.
In fact, several prominent companies have multiple share class registrations:
-Berkshire Hathaway
-Under Armour
-McCormick
So why do companies do this?
Well in most cases it is about ownership. Let’s use Under Armour as our example here. They have not one, not two, but three different share classes. You and I can buy the A & C share, but the founder Kevin Plank owns all the B shares.
Their voting breakdown is as follows:
A: 1 B: 10 C: 0
In this case, it is for the founder to retain control and influence of the company. Mr. Plank owns 16.6% of the outstanding shares, but 66.5% of the voting power according to the FDRA link above.
Could you imagine if politicians could negotiate these terms?
So why does it matter which share class you own?
Because just like exercising your right to vote is your ability to have your say in your government, so too is exercising your vote on the board of directors and any potential proposals that may be brought forth.
And the matters you vote on can range from who audits the company, to who is on the board.
I don’t know about you, but if given the opportunity to have a voice in the company I own a share of, I want it.
And the reason I want to have a voice is for moments like the one that occurred at Wells Fargo a couple of years ago. After all the scandals that besieged the company, shareholders responded, with the way they knew how – their vote – leaving board members reeling.
A Second Volume or a New Book?
Finally, it is indeed election day. Will we start writing a second volume to the Trump Presidency or begin a new one for Biden?
Who knows?
But regardless of our political beliefs, let’s remember the wisdom embedded in this line from Bob Dole’s concession speech to President Clinton in 1996:
‘I’ve said repeatedly in this campaign that the President was my opponent and not my enemy.’
Just as the sun rose this morning, it will set with one constant: We are all Americans and in this together.
And with that I leave you with this beautiful rendition of ‘This Land is Your Land’:
Disclosure:
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal.
Financial Recon 