Who owns a publicly traded company? The short answer is, “The shareholders.” But that probably won’t get you very far on your campaign. What you really want to know is whether there are any individual shareholders that are so large and powerful that they could actually persuade management to change their course of action. So where do you start?
Let’s take Nordstrom, Inc. as an example. It has an interesting ownership structure that illustrates many of the key points you might come across.
Start By Pulling a List from a Financial Web Site Such As Yahoo! Finance or Morningstar.com.
On Yahoo! Finance , Search by the company name or the ticker symbol, then click on the tab called “Holders.”
On Morningstar, it looks like this:
Both sites have similar information. For the rest of this example, we’ll use the format on Yahoo!.
Once you click on the Holders tab, you will see three lists.
The first list will give you a breakdown of the entire universe of stockholders. The first number shows the percentage of the company owned by “insiders”—executives or board members of the company. At companies where a family still controls a significant percentage of the company, you’ll typically see a high percentage of the shares owned by insiders. The second number is the percentage of the stock held by institutions—investment managers, banks, pension funds, hedge funds, etc.—as opposed to individuals. The third number refers to the percentage of shares in general circulation (that is, the shares that can be traded openly on the market, excluding special classes of stock controlled by insiders) that are owned by institutions. The final number is the number of different institutions that own the stock. If this is a small number, the company is described as “closely held.” Even though it’s technically a public company, shares of the stock might not trade at a high volume.
The second list will give you a snapshot of the largest institutional shareholders. You’ll notice that this list does not contain any of the company insiders who own stock in the corporation. (More on that in a minute.) Very often, you’ll see companies such as Vanguard, BlackRock, and Fidelity at the top of these lists. These are some of the largest investment managers in the world, and they hold a significant percentage of many—maybe even most—publicly traded companies just by virtue of their sheer size. It probably doesn’t mean they have any particular interest in this company, and in most cases it would be very difficult to engage them in a dialogue around a company’s business practices and commitment to social responsibility. You’ll have to look deeper.
The third list will give you a list of the mutual funds that own the most stock in the company. You will notice that a large investment manager such as Vanguard or JP Morgan will have several different funds that own shares in the company. This information can be valuable if you’re an investor, but for our purposes it’s generally more useful to look at the list of largest institutional shareholders, above.
Next, you’ll want to take a look at the company’s proxy statement.
The proxy statement is the document that companies send to their shareholders before the annual meeting. It includes a ballot detailing any issues on which shareholders must vote, and it contains information about the company’s corporate governance, executive compensation, and other issues relevant to the issues on the ballot. You can typically find the proxy statement by going to a company’s web site, clicking on the Investor Relations section, and then looking for the section that contains the company’s SEC filings (the documents they are legally required to file with the U.S. Securities and Exchange Commission). The proxy statement is officially called Form DEF-14A—that’s probably how the company will list it on its web site.
Once you’ve downloaded the company’s proxy statement, locate the section called Security Ownership of Certain Beneficial Owners and Management. This is where you’ll find the list of corporate insiders and how much stock they have, as well as information on any other shareholders that own five percent or more of the company. You’ll notice that at Nordstrom, members of the family who founded the company still own a large percentage of the shares.
Next, find the section of the proxy statement that includes information on the company’s board of directors.
Look for any overlap between the institutions that own the most stock in the company and the members of the board. In Nordstrom’s case, you can see that the Co-President and CEO of J.P. Morgan sits on the board. You know from the list above that J.P. Morgan owns 3.38 percent of the shares in the company. This suggests J.P. Morgan is probably an important voice in the corporate boardroom.
The Board of Directors may contain other clues about which investors exert the most control over the company’s decision-making. If you’re looking at startup companies, for example, you often see members of the venture capital firms that provided early investments in the company on the board or directors. A board seat is often part of the arrangement when a venture capitalist backs a new company. At mature companies, you might see a hedge fund manager that has wrangled a board seat after snapping up a significant number of shares. These funds often have a demand they are making of the company—something they think will make the business more competitive and drive the stock price higher. The unspoken (or sometimes very loudly spoken) threat is that if management doesn’t take the hedge fund’s advice, they might launch a hostile takeover bid. (See, for example, when a group of hedge funds tried to put Harry J. Wilson up for the General Motors board of directors. Wilson was trying to convince GM to buy back $8 billion worth of shares—a move that the hedge funds believed would drive up the company’s stock price. Opponents, meanwhile, thought the company could put all that cash to use in better ways.)
What have we learned so far about Nordstrom’s ownership structure?
The ten largest institutional shareholders own about 29 percent of the company’s stock. This is not an unusual number for most publicly traded companies.
In addition, the Nordstrom family owns about 31 percent of the company’s stock, and holds three of the eleven seats on the board of directors. That means that the family plus the top 10 shareholders together control 60 percent of the company. It’s fair to say that Nordstrom’s ownership is fairly concentrated in a relatively small number of investors.
JP Morgan appears to be an important force in the life of the company. Its co-CEO sits on the board, and the company is also a major Nordstrom shareholder. If I were to dig deeper into the company, I would want to learn more about the nature of that relationship.
Going Deeper on Public Company Ownership
There are other things you might want to look at, too.
Special Classes of Stock. Some companies have a special classes of stock that has greater voting power. A company that was once family-owned, for example, might have a special preferred class of stock that has more voting power than common stock to ensure that the family continues to exert a high degree of control over the company. The same is true at companies such as Google, where the founders want to maintain a tight grip. Google has three classifications of stock—A shares (which have one vote), B shares (which are only held by the company founders, and have 10 votes each), and C shares (which have no votes). You can find out more about the different classes of company stock in the proxy statement or in the company’s annual report to the Securities and Exchange Commission (known as a Form 10-K).
Other Corporate Governance Issues. Besides stock classes, there are all sorts of other ways that companies can give the board and executives more power to run the company, insulated from the opinions and interests of other shareholders. Corporate governance is a huge topic, but this primer can help get you started.
Changes In Stock Ownership. When large investors (those who own 5 percent or more of the company’s stock) or company insiders buy or sell shares, they have to report that to the Securities and Exchange Commission. The initial filing is called a Form 3, and subsequent changes in ownership are called Form 4s. These are available in the investor relations section of the company’s web site, or on the SEC’s web site.