The Tale of INPEX and the Golden Share

A “Golden share” is a Anglo-European legal concept by which one nominal share carries special veto rights and is able to outvote all other shares in certain specific circumstances. The term arose in the 1980s when the British government retained golden shares in companies it privatized, and later the concept emerged in Russia, Germany, Spain, and Portugal. They are typically held by a government organization, and the shares are over a government company undergoing the privatization. The share gives the government organization the right of decisive vote, thus to veto all other shares, in a shareholders-meeting. In Europe, 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. Wikipedia has more on the concept here.

Readers may be surprised to learn that golden shares were one of the concepts quietly introduced with Japan’s new Company Law of 2006. Under article 108 of the law, “preferred shares with veto rights” (kyohiken tsuki shurui kabushiki) were created, which are referred to as “Golden Shares” (ougon kabu). The shares cannot be transferred, and under guidelines issued by METI and MOJ, they are designed to prevent hostile takeovers. The purpose of golden shares in Japan is therefore somewhat different from the British/European concept, where they are used to transition state companies into the private sector.

The Tokyo Stock Exchange has said that companies with golden shares will not be listed, for the plain reason that they violate the principle of shareholder equality. Following opposition from the business community, on the basis of certain exceptions, such as if a general shareholder meeting approved the listing regardless of the golden shares, and the golden share not violating shareholder profits, this initial policy was changed. Any breach of this principle would result in delisting.

Presently, there is just one listed company in Japan that has golden shares — Kokusai Sekiyu Kaihatsu Teiseki Kabushiki Kaisha, or known in English and Japanese as INPEX. According to Wikipedia, the Minister of METI holds 29.35% of the ordinary shares of INPEX, in addition to just one “A-Class Share (Golden Share).” INPEX is Japan’s largest private company engaged in upstream oil exploration, and METI (and Japan as a whole) probably recognizes that this company is important enough that it shouldn’t be subject to hostile takeovers.

7 thoughts on “The Tale of INPEX and the Golden Share”

  1. It’s possible Japan Post could have one if they ever list.

    Here is something from the INPEX website about what decisions need METI approval:

    “The major corporate decisions include the appointment or removal of directors, disposal of the entire or part of important assets, amendments to the Articles of Incorporation, mergers, share exchanges or share transfers, capital reductions and dissolutions. Director appointments or removals, mergers, share exchanges or share transfers require a resolution by the holder of the special-class share, provided a 20 percent or more of the voting rights attached to shares of common stock is held by a single non-public entity or a single non-public entity and its joint shareholders. ”

    http://www.inpex.co.jp/english/company/governance.html#gov06

  2. Golden shares are not just a government thing. Northwest Airlines used to have a golden share in Continental. The short story was that NW was fighting with Delta to get control of CO. NW ended up buying control of CO, but the US antitrust authorities were complaining about the setup, so NW scaled back to a “golden share” that would allow it to torpedo any high-level deals between CO and Delta. Ironically enough, NW eventually sold its golden share for a really pithy sum ($100) so it could merge with Delta, and CO then joined Star Alliance and merged with United.

    http://dealbook.nytimes.com/2008/04/17/continental-buys-back-golden-share-from-northwest/

  3. Is this any different from the “Class A/B” stock schemes used by companies such as the New York Times, when the original owning family wants to raise money by going public while retaining voting control of corporate management?

  4. It’s different. The “golden share” gives the holder veto rights over certain actions, whereas “founder shares” basically give the holders additional votes, or take away the non-founder shareholders’ votes, so the founders maintain the right to control the board. It’s like the difference between being President and having a majority in Congress.

  5. I like the idea of `golden shares` when it is used by founders to protect their position and control of a company after it has gone public. On the other side, I hate the idea of government having any control over a private company.

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