Golden share

What Is a Golden Share?

A golden share is a distinct class of share that grants its holder disproportionate voting or veto rights over specific corporate decisions, often irrespective of the economic stake held in the company. In the realm of corporate governance, golden shares serve as a powerful tool to maintain control over strategic assets or ensure particular outcomes, typically employed by governments or, less commonly, by founding entities in private companies. Unlike standard ordinary shares, which generally confer voting rights proportional to ownership, a golden share can allow its holder to block major corporate actions, such as significant asset sales, changes to the articles of association, or even hostile takeovers, even if the holder possesses only a nominal percentage of the company's total equity.³⁰, ³¹, ³²

History and Origin

The concept of the golden share gained significant prominence in the 1980s, primarily in the United Kingdom, during the widespread privatization wave under Prime Minister Margaret Thatcher. As the government divested its ownership in numerous state-owned enterprises, it sought mechanisms to retain strategic influence over critical industries such as defense, energy, and telecommunications. The golden share emerged as a solution, allowing the government to safeguard national interests without maintaining majority ownership. These special shares were often retained in companies like British Aerospace, British Airways, British Gas, and British Petroleum.²⁷, ²⁸, ²⁹

Other European countries and even the former Soviet Union adopted similar approaches. However, the use of golden shares, particularly by governments, later faced legal challenges within the European Union. The European Court of Justice (ECJ) ruled against several member states, including Portugal, France, Spain, and the UK, deeming their golden share arrangements to be in breach of EU principles concerning the free movement of capital.²⁵, ²⁶ These rulings typically asserted that such shares were only permissible if they were non-discriminatory, based on objective and public criteria, subject to judicial review, and the least restrictive means of protecting a legitimate public interest.²³, ²⁴

Key Takeaways

• A golden share grants its holder special veto or disproportionate voting rights over specific company decisions.²¹, ²²
• It is often used by governments to retain influence over privatized strategic industries.²⁰
• Golden shares allow significant control without requiring a majority financial stake.¹⁸, ¹⁹
• The European Court of Justice has often ruled against governmental golden shares, citing restrictions on free movement of capital.¹⁶, ¹⁷
• Recently, golden shares have seen a re-emergence as a tool to protect national interests in global economic competition.

Interpreting the Golden Share

A golden share signifies a concentrated power center within a company's share capital structure. Its presence indicates that certain major decisions are not solely subject to the will of the majority shareholders based on their percentage ownership. Instead, the holder of the golden share can exert decisive influence or outright veto power over specified actions. This mechanism is interpreted as a protective measure, ensuring that critical corporate changes or shifts in control align with the interests of the golden share holder, often a government safeguarding national security or vital services. The influence extends to areas like significant mergers, acquisitions, or even the appointment of board of directors members.¹⁴, ¹⁵

Hypothetical Example

Consider a hypothetical nation, "Industria," that privatizes its national railway company, "Railspeed Inc." To ensure continued control over critical infrastructure and prevent potential disruption to essential services, the government of Industria retains a golden share in Railspeed Inc. This golden share, while holding a nominal financial value (e.g., one euro), is enshrined in Railspeed's articles of association.

The golden share grants Industria's government the power to:

• Veto any proposed sale of more than 10% of Railspeed's assets.
• Approve any merger or acquisition involving Railspeed Inc.
• Block any change to the company's headquarters location.

Years later, a foreign consortium attempts a hostile takeover of Railspeed Inc., acquiring 60% of its ordinary shares. Despite holding a clear majority, the consortium's plan to sell off unprofitable regional lines is immediately vetoed by the Industria government, exercising its golden share rights. This demonstrates how the golden share enables a minority stakeholder to exert significant control over strategic decisions, overriding the wishes of the majority shareholders to protect predefined national interests.

Practical Applications

Golden shares are primarily observed in scenarios where a governing body or founding entity seeks to retain enduring influence over a company, particularly in sensitive sectors.

1. Government Privatizations: Historically, the most common application has been during the privatization of state-owned enterprises. Governments retain golden shares in industries crucial for national security, public services, or vital economic functions (e.g., defense, energy, telecommunications, transportation) to prevent undesirable changes in ownership or control.¹³
2. Strategic Industries: Even outside of direct privatization, governments may utilize golden shares to influence companies operating in strategically important sectors to ensure stability and alignment with national policy objectives. For instance, the government of Brazil holds a golden share in the aircraft manufacturer Embraer, allowing veto power over strategic military programs.
3. Recent Geopolitical Context: In a notable contemporary example, the U.S. government implemented a "golden share" mechanism as part of Nippon Steel's acquisition of U.S. Steel in 2025. This provision grants the U.S. government veto power over certain decisions, such as relocating jobs or idling plants, underscoring a re-emerging trend of states leveraging golden shares to shape markets and protect national interests in the face of increasing global competition.¹¹, ¹² Such arrangements influence mergers and acquisitions and cross-border investment flows.¹⁰

Limitations and Criticisms

While golden shares offer a mechanism for control, they are not without limitations and criticisms, particularly concerning their impact on capital markets and fundamental principles of company law.

A primary criticism stems from the disproportionate power they grant to a single holder, often undermining the "one share, one vote" principle that underpins many corporate governance frameworks. This can create an imbalance where a minority shareholder, usually a government, can override the collective will of other shareholders, potentially leading to governance friction and reduced managerial autonomy.⁸, ⁹

Economically, the existence of a golden share can deter investment by increasing perceived political risk and uncertainty. Investors might demand a discount for investing in a company where a government or other entity retains significant veto power, potentially raising the cost of capital for the affected company. This concern was central to the European Court of Justice's rulings against many governmental golden shares, which were often found to violate the principle of the free movement of capital within the European Union. These rulings emphasized that such measures should be strictly interpreted and only justified by compelling public interests, such as public security, and must be proportionate and non-discriminatory.⁶, ⁷ Some critics argue that golden shares can act as a barrier to open competition and foreign investment, hindering market discipline and efficiency.⁵

Golden Share vs. Ordinary Share

The fundamental difference between a golden share and an ordinary share lies in their associated rights and influence within a company's share capital.

While an ordinary share represents a fractional ownership interest with corresponding economic and voting rights, a golden share is a specialized instrument designed to preserve influence and control, often divorced from the economic realities of a typical ownership stake. Its primary utility is to block certain corporate actions, not to share in the company's financial success in the same way an ordinary share does.

FAQs

Who typically holds a golden share?

A golden share is most commonly held by a government, especially after the privatization of a state-owned enterprise. In some instances, it might be held by a founding family or a trust to protect the company's original mission or values.³

Does a golden share provide economic benefits like dividends?

No, a golden share typically does not provide economic benefits such as dividends or capital gains. Its value lies solely in the special governance rights it confers, primarily the power to veto specific strategic decisions.²

Can a golden share be removed?

The ability to remove a golden share depends on how it was established. If it's part of a company's articles of association, it might be removed through a special resolution of shareholders, potentially requiring the consent of the golden share holder. If enshrined in legislation, it would require legislative action to remove it. Some golden shares may also have time limits or sunset clauses.¹