Voting power
When strategic decisions are going to be made, the question is: Who will be able to get his/her will? What shareholder or shareholders are in control? Complex ownership structures may hide who has the decision power in a company. T-rank calculates a voting power score for every direct and indirect shareholder of a given company, given that we have sufficient ownership data (more than 50%).
Voting power/Shareholder power is a shareholder’s ability to push through his or her will in a vote. Voting power is an indication of how powerful a shareholder is. Voting power is a score between 0 and 100%. A voting power of 100%, or almost 100%, means control – the shareholder may dictate (almost) all votes.
The calculation of voting power is extremely complex. The challenge is that the complexity grows exponentially with the number of shareholders. Complex ownership structures can hide powerful owners or a powerful group of owners.
In the anonymized German example below, the largest shareholder has a direct ownership of 49.50% but voting power of only 25%. The most powerful shareholder has a voting power of 75%, but her integrated ownership is only 2.49%. Voting power of 75% is not enough to be in control (control implies voting power of almost 100%), but says that if all shareholders votes by flipping a coin, the vote of this shareholder will be decisive for the outcome in 75% of the cases (and the outcome will be the same as this shareholder’s vote in 87.5% of the votes).
Let’s try to understand a bit better what is going on:
If Kailyn votes together with Orie, they will have the majority of the votes in Green-Sipes directly.
If Kailyn votes together with Kiley or Velma, they together will control Beahan, Schiller and Reichert. Together with Kailyn’s direct ownership in Green-Sipes, this is sufficient to win any vote in the company.
Thus, Kailyn only needs to agree with one of the other shareholders to win a vote, while all the other shareholders need to cooperate in order to be able to vote Kailyn down.
The T-rank power score can be used to understand who the powerful owners are when there is no single controlling owner. It can also be used to determine de facto control according to IFRS – situations where an owner should be considered to be in control with less than 50% of the votes. The example below shows acompany a company with 32 owners.
The largest owner owns 38%, the remaining 31 owners own 2% each. In such a distributed ownership structure, the largest owner will end up with 99.95% Voting Power.