What is control stock?

Imagine a company is like a big ship sailing the ocean. Control stock is a special ticket that ensures passengers boss the captain around more than others. Even if these backseat captains don’t have most tickets, their special ones give them a more significant say in where the ship goes and what it does.

What is Control Stock?

Control stock comes in two primary flavors:

1. A special class of common stock that packs an extra punch in the voting booth. Owning this souped-up stock means you get more votes than the average Joe so that you can throw your weight around more at company pow-wows.
2. When some bigwig stockholder has a bunch of the regular common stock. It may not be over half the pot, but it’s still enough for them to get the company to do what they want, most of the time.

If you have control stock, you hold more of the strings than most folks. You can make the company dance to your tune.

It’s Good to Be King

Think of corporations like countries. Regular shareholders are the ordinary citizens. They get a vote, but nobody cares what they think. Control shareholders are the royalty. They’ve got the crown jewels (in the form of high-octane stock), so their votes count for more. The company has to bow and scrape to keep them happy, or else.

Say the king (or queen) only has 30% of the total stock. Doesn’t matter. They have the keys to the castle. The rabble can grumble all they want with their 70%, but at the end of the day, His Majesty gives the orders. Off with their heads if they don’t like it!

Better Than a Dictatorship

Now, control stock may sound all powerful, but it’s not a total dictatorship. It’s more like a constitutional monarchy. There are still some laws and limits on the ruler’s power, thanks to things like:

• Shareholder agreements
• Company bylaws and charters
• Fiduciary duties to ALL shareholders

So the control group can’t just run wild, pillaging and looting the company for themselves. They have to pretend at least to care about the little people too, making sure everyone gets their pockets lined.

Why Use Control Stock?

Companies will crown a control group for a few reasons:

1. The founders want to keep a grip on their baby as it grows up. Regular shareholders are like the nannies and tutors, but Mommy and Daddy still make the rules.
2. The company wants some sugar daddies (or mommas) to put up lots of cash to help it grow without having to answer to a whole nursery school of whiny kids.
3. The company is a special case, like a do-gooder “benefit corporation” more worried about its mission than making a quick buck. The control group ensures it stays on the righteous path and doesn’t sell out.

Keeping the Vision

This last one is a biggie. Some companies are started by starry-eyed dreamers who would rather stick to their crazy vision than make money. They KNOW the world needs their solar-powered, eco-friendly, gender-neutral, carbon-negative whosawhatsit. But Mr. Market is a ruthless, short-term thinker who just wants profits NOW, damn the consequences.

Control stock is like a set of blinders for the company. It lets the founders keep steering towards their lofty goals without getting distracted or led astray by the howling mob of shareholders waving quarterly earnings reports. It’s a nifty trick to let idealistic entrepreneurs raise big bucks on the market without selling their souls. Heck, even Bloomberg is doing the benefit corporation thing nowadays.

The Dark Side

‘Course, control stock has a dark side too. Sometimes it’s a way for the head honchos to hoard all the power and loot for themselves while giving the other investors nada. It can be a way to build a company that looks public, but is really the personal piggy bank of an elite few.

And if management makes a bonehead move or two, it can tough for the regular stockholders to give ’em the boot, even if they’re running the company into the ground. Look at Viacom and that whole mess with Sumner Redstone. The old coot kept control even when he was practically in the grave, and it wasn’t pretty.

So there you have it – the good, the bad, and the ugly of control stock. It separates the corporate aristocrats from the plebes. Love it or hate it, control stock is a way for the lords and ladies of the realm to keep a tight grip on the reins, even as the rabble are pounding at the castle gates, torches and pitchforks in hand. It’s not quite “one share, one vote”, but then again, whoever said the stock market was a democracy?

Common Examples

Some big name companies that use control stock schemes include:

• Alphabet (Google’s overlord)
• Facebook (Zuck’s little kingdom)
• Berkshire Hathaway (Warren Buffett’s holding company)
• Ford Motor Company (still controlled by the Ford family)
• The New York Times Company (the Sulzbergers run the show)

In each case, the control group has a lock on things even though they don’t necessarily own 51%. Zuckerberg owns a tiny share of Facebook’s total stock, but his shares have way more votes than everyone else’s. Same deal with Larry Page and Sergey Brin over at Google. The plebes can buy all the regular stock they want; the kings still rule the realm.

Conclusion

All in all, control stock is just another way for the bigwigs to stay big. The fat cats use it to keep the little guys from rocking the boat too much. It’s not exactly a “share the wealth” kind of system.

But that’s capitalism for ya. It’s the golden rule: whoever has the gold makes the rules. The whole stock market game is about making money, not being fair. There are different classes of stock for the same reason there are different classes on airplanes and trains. First class gets the champagne dreams, coach gets the pretzels and cramped seats.

Hey, at least us coach passengers can still trade our measly little shares on the market. The control freaks usually have to wait until they die or retire to cash out. They’re stuck driving the ship while we’re free to hop overboard if we don’t like where it’s heading. There’s always another boat to catch!