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Shareholder Voting Power and Corporate Governance: A Study of Large British Companies

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  • Dennis Leech

Abstract

The pattern of ownership and control of British industry is unusual compared with most other countries in that ownership is relatively dispersed. Majority ownership by a single shareholder is unusual. It is not uncommon for the largest shareholding to be under 20 percent and in many cases much less than that. A similar pattern occurs in the USA. The question of voting power is the focus of this paper. Conventional analyses of control through voting use a 20% rule to identify a controlling bloc, either a single individual or institutional shareholder or a group voting together. Theoretical voting power of minority shareholding blocs is studied using a voting power index. This is applied to a model of ownership control described in Leech (1987) based on the definition of control used by Berle and Means (1932). The results give support for use of a 20 percent rule in many cases but not all. Also they support the idea that many companies are potentially controlled by a bloc of a few large shareholders working in concert, in almost all cases a voting bloc of the top six shareholdings combined could have working control whether or not it commanded a majority of the shares.

Suggested Citation

  • Dennis Leech, 2001. "Shareholder Voting Power and Corporate Governance: A Study of Large British Companies," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 27, pages 33-54.
  • Handle: RePEc:noj:journl:v:27:y:2001:p:33-54
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    File URL: http://www.nopecjournal.org/NOPEC_2001_a03.pdf
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    References listed on IDEAS

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    1. Leech, Dennis, 1987. "Ownership Concentration and the Theory of the Firm: A Simple-Game-Theoretic Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 35(3), pages 225-240, March.
    2. repec:hrv:faseco:30728046 is not listed on IDEAS
    3. Leech, Dennis & Leahy, John, 1991. "Ownership Structure, Control Type Classifications and the Performance of Large British Companies," Economic Journal, Royal Economic Society, vol. 101(409), pages 1418-1437, November.
    4. Dennis Leech, 2002. "An Empirical Comparison of the Performance of Classical Power Indices," Political Studies, Political Studies Association, vol. 50(1), pages 1-22, March.
    5. Pradeep Dubey & Lloyd S. Shapley, 1979. "Mathematical Properties of the Banzhaf Power Index," Mathematics of Operations Research, INFORMS, vol. 4(2), pages 99-131, May.
    6. Dennis Leech, 1988. "The Relationship Between Shareholding Concentration and Shareholder Voting Power in British Companies: A Study of the Application of Power Indices for Simple Games," Management Science, INFORMS, vol. 34(4), pages 509-527, April.
    7. Julian Franks & Colin Mayer, 1997. "Corporate Ownership And Control In The U.K., Germany, And France," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 30-45.
    8. repec:cup:apsrev:v:48:y:1954:i:03:p:787-792_00 is not listed on IDEAS
    9. Leech, D., 2000. "Members' Voting Power in the Governance of the International Monetary Fund," The Warwick Economics Research Paper Series (TWERPS) 583, University of Warwick, Department of Economics.
    10. Leech, D., 1998. "Computing Power Indices for Large Voting Games: A New Algorithm," The Warwick Economics Research Paper Series (TWERPS) 510, University of Warwick, Department of Economics.
    11. Cubbin, John S & Leech, Dennis, 1983. "The Effect of Shareholding Dispersion on the Degree of Control in British Companies: Theory and Measurement," Economic Journal, Royal Economic Society, vol. 93(37), pages 351-369, June.
    12. Leech, D., 2001. "Fair Reweighting of the Votes in the EU Council of Ministers and the Choice of Majority Requirement for Qualified Majority Voting during Successive Enlargements," The Warwick Economics Research Paper Series (TWERPS) 587, University of Warwick, Department of Economics.
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    Citations

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    Cited by:

    1. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    2. Dennis Leech, 2003. "Computing Power Indices for Large Voting Games," Management Science, INFORMS, vol. 49(6), pages 831-837, June.
    3. Pietro Marchetti & Valeria Stefanelli, 2009. "Does the compensation level of outside director depend on its personal profile? Some evidence from UK," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 13(4), pages 325-354, November.
    4. Angelo Baglioni, 2011. "Shareholders' agreements and voting power: evidence from Italian listed firms," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 4043-4052.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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