Because common shareholders are the owners of the firm, they are accorded the right to vote for the board of directors and on all other major issues. Common shareholders may cast their ballots as they see fit on a given issue, or they may assign the power to cast their ballots to management or to some other group interested in assembling a block of votes.
As mentioned in the previous section, some corporations have different classes of common stock with unequal voting rights. There may be non-voting stock. For example, Canadian Tire Corporation, a retailer of a variety of automotive, sports, and household items, has both non-voting Class A and voting common shares. The Class A shares have been issued over the years to augment the company’s equity without diluting the controlling ownership. In 1983 the three children of co-founder Alfred Billes borrowed $76.6 million to buy a second 30 percent stake from the other co-founder’s estate. A subsequent splitting of one common share into one voting common share and four Class A non-voting shares allowed the Billes family heirs to maintain control over the company while at the same time paying down the debt acquired to keep control of the corporation in the family. Thus, the owners of 60 percent of the 3,450,000 voting common shares controlled the company despite the fact there were over 80 million Class A non-voting shares as of 1987. The Class A and common shares get essentially the same treatment in terms of dividends and priority of claims in the event of liquidation. So that they have some representation in corporate policy making, the holders of the Class A shares, voting separately as a class, are entitled to select the greater of three directors or one fifth of the total number of the corporation’s directors.
The Canadian Tire case was a well-publicized example demonstrating the potential dangers of non-voting shares. In the Canadian Tire situation there is a clause whereby Class A non-voting shares become voting shares if a tender offer is made to purchase voting common shares and a majority of those are tendered. In December 1986 the Canadian Tire franchised dealers, who already owned 17.4 percent of the common shares, and members of the Billes family committed to tender that portion of their interests. Even though the dealers would have owned 66 percent of the voting stock if their offer succeeded, their legal advisers judged the offer would not trigger the voting if their offer succeeded, their legal advisers judged the offer would not trigger the voting conversion for the Class A shares. This attempt to take advantage of a loophole in the wording of the clause, supposedly there to protect the rights of the Class A shareholders, incensed many investors and investment professionals alike. As a result the Ontario Securities Commission (OSC) held hearings into the transaction.
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