Most people associate the electoral college system with the United States presidential election. You might not be aware that most of those who hold stock in a company also participate in a system much like the electoral college each time they vote for a board of directors. If this is the case, how much power do stockholders really have when it comes to publicly-traded companies?
You’ll Have Minimal Say Regarding Daily Operations
When you purchase stock, you essentially become a part owner of the company. However, you likely only purchase a very small percentage of the overall ownership. This means you have little to no input on the daily operations of the company. This being said, you do have a say in who can make such important decision because you can vote for the board of directors.
The Importance of Voting for Directors
The board of directors of a corporation has a direct say in how a company operates, which lends to the company’s overall success. The board also selects the CEO and other important executives, who oversee the company. As a stockholder, you can vote for who you would like to have such decision-making and oversight authority. In turn, you can influence the decisions that are made on a daily basis and that success of the corporation, including the value of your stock.
Do All Stockholders Have Voting Rights?
Voting rights can vary based on your stockholder agreement. Check your agreement to see when your voting rights kick in and the extent of those rights. For example, in some companies, owning three percent of stock for at least three years can give you voting rights, though this can vary from company to company. You should discuss your stockholder rights with a business attorney if you need assistance understanding them.
Disagreeing With the Board
Even if you vote for a board of directors, you may disagree with decisions they make and you may have the right to take action. This may be the case if the decision is a major one that critically affects the business, including:
- Mergers and acquisitions
- Selling part or all of the company
- Changing stock availability or selling unissued stock
- Substantially and inappropriately changing the salary, benefits, or other compensation of the CEO or other executives
If you disagree with such decisions, you may be able to vote against the board, sell your stock interests, try to get on the board yourself (if you own enough stock), or even file a lawsuit against the board of directors or managers. Note that a lawsuit may allege they are not acting in the best interests of the company.
Contact a Houston Business Law Attorney for More Information
Exercising stockholder rights can be important for both the stockholders and the company as a whole. If you would like more information about your rights as a stockholder or about any aspect of business law, please call The Weisblatt Law Firm at 713-352-0847 or contact our office online to schedule an appointment.