Golden share explained

In business and finance, a golden share is a nominal share which is able to outvote all other shares in certain specified circumstances, often held by a government organization, in a government company undergoing the process of privatization and transformation into a stock-company.

Purpose

This share gives the government organization, or other shareholder, the right of decisive vote, thus to vote all other shares, in a shareholder meeting. Usually this will be implemented through clauses in a company's articles of association, and will be designed to prevent stakebuilding above a certain percentage ownership level, or to give a government, or other shareholder, veto powers over any major corporate action, such as the sale of a major asset or subsidiary or of the company as a whole.

In the context of government-owned golden shares, this share is often retained only for some defined period of time to allow a newly privatised company to become accustomed to operating in a public environment, unless ownership of the organisation concerned is deemed to be of ongoing importance to national interests, for example for reasons of national security.

NATS Holdings, the UK's main air navigation service provider, is an example of a company with a golden share.[1]

History

The term arose in the 1980s when the British government retained golden shares in companies it privatised, an approach later taken in many other European countries, as well as the former Soviet Union. It was introduced in Russia by a Decree of the President of the Russian Federation (Boris Yeltsin) on November 16, 1992.[2]

People's Republic of China

In 2013, the People's Republic of China introduced golden shares termed "special management shares".[3] Since then, golden shares have been utilized by Chinese Communist Party (CCP) general secretary Xi Jinping's administration to expand control over private companies, particularly technology companies.[4] [5] During the 2020-2021 Xi Jinping administration reform spree, the government used strategic share acquisitions to increase its golden share holdings.[6] In 2021, The Economist and Reuters described the Chinese government's stake in ByteDance as a golden share investment.[7] [8]

Legal challenges

The British government's golden share in BAA, the UK airports authority, was ruled illegal by European courts in 2003, when it was deemed contradictory to the principle of free circulation of capital within the European Union.[9] The European Court of Justice also held that Portugal's holding of golden shares in Energias de Portugal is contrary to European Union law since it presented an unjustified restriction on free movement of capital.[10]

Other golden shares ruled illegal include the Spanish government's golden shares in Telefónica, Repsol YPF, Endesa, Argentaria and Tabacalera.

The golden share structure of Volkswagen AG and the travails of the German Land (federal state) of Niedersachsen (Lower Saxony) are discussed by Johannes Adolff[11] as well by as Peer Zumbansen and Daniel Saam.[12]

Notes and References

  1. Web site: Our Ownership. NATS Holdings. 19 December 2013. 21 April 2014. https://web.archive.org/web/20140421104602/http://www.nats.aero/about-us/what-we-do/our-ownership-2/. dead.
  2. Tatyana A. Tchilimova, Anna I. Serebrennikova, Irina A. Sofronova . Golden Share as a Tool of Corporate Strategic Management of the State . Advances in Economics, Business and Management Research . January 18, 2020 . 114 . 525-7 . 10.2991/aebmr.k.200114.122 . 7 February 2024 . free . 7 February 2024 . https://web.archive.org/web/20240207044049/https://www.atlantis-press.com/proceedings/ficehs-19 . live .
  3. News: Wei . Lingling . March 8, 2023 . China's New Way to Control Its Biggest Companies: Golden Shares . subscription . 2023-03-09 . . en-US . 2023-03-08 . https://web.archive.org/web/20230308234734/https://www.wsj.com/articles/xi-jinpings-subtle-strategy-to-control-chinas-biggest-companies-ad001a63 . live .
  4. News: November 26, 2023 . Xi Jinping's grip on Chinese enterprise gets uncomfortably tight . . subscription . 2023-11-27 . 0013-0613 . State investors have also been taking "golden shares", tiny stakes that grant outsized voting powers, in China’s internet giants. In October it was revealed that a government agency had taken a 1% stake in a subsidiary belonging to Tencent, China’s mightiest internet titan. . 2023-11-26 . https://web.archive.org/web/20231126212132/https://www.economist.com/business/2023/11/26/xi-jinpings-grip-on-chinese-enterprise-gets-uncomfortably-tight . live .
  5. News: McGregor . Grady . April 2, 2023 . Golden Grip . subscription . April 15, 2023 . . April 15, 2023 . https://web.archive.org/web/20230415212231/https://www.thewirechina.com/2023/04/02/golden-grip-golden-shares/ . live .
  6. Book: Zhang, Angela Huyue . High Wire: How China Regulates Big Tech and Governs Its Economy . . 2024 . 9780197682258 . 10.1093/oso/9780197682258.001.0001.
  7. News: 2021-11-18 . China's communist authorities are tightening their grip on the private sector . subscription . live . https://web.archive.org/web/20211122040933/https://www.economist.com/business/chinas-communist-authorities-reinvent-state-capitalism/21806311 . 22 November 2021 . 2021-11-22 . . 0013-0613.
  8. News: 2021-12-15 . Fretting about data security, China's government expands its use of 'golden shares' . en . . live . 2022-02-24 . https://web.archive.org/web/20220224043509/https://www.reuters.com/article/china-regulation-data-idCAKBN2IU2B7 . 24 February 2022.
  9. News: Business | BAA 'golden share' ruled illegal . . 2003-05-13 . 2016-04-02 . 2008-09-22 . https://web.archive.org/web/20080922083833/http://news.bbc.co.uk/1/hi/business/3022809.stm . live .
  10. Web site: Portugal's holding of golden shares in Energias de Portugal is contrary to European Union law . Curia.europa.eu . 2016-04-02 . 2016-03-04 . https://web.archive.org/web/20160304191100/http://curia.europa.eu/jcms/upload/docs/application/pdf/2010-11/cp100112en.pdf . live .
  11. Johannes . Adolff . Turn of the Tide? The 'Golden Share' Judgments of the European Court of Justice and Liberalization of the European Capital Markets . January 24, 2008 . dead . https://web.archive.org/web/20071212034824/http://www.germanlawjournal.com/article.php?id=170 . December 12, 2007 . German Law Journal . 3 . 8 . 1 August 2002. 10.1017/S2071832200015273 . 142085251 .
  12. 7 . German Law Journal . 11 . 1027–1051 . November 15, 2007 . The ECJ, Volkswagen and European Corporate Law: Reshaping the European Varieties of Capitalism . Peer C . Zumbansen . Daniel . Saam . 10.1017/S2071832200006167 . January 24, 2008 . dead . https://web.archive.org/web/20110719032025/http://www.germanlawjournal.de/print.php?id=870 . July 19, 2011 .

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