Aswath Damodaran 26
A confounding factor: Voting versus Non-voting Shares -
Aracruz
! Aracruz Cellulose, like most Brazilian companies, had multiple classes of
shares at the end of 2002.
- The common shares had all of the voting rights and were held by incumbent
management, lenders to the company and the Brazilian government.
- Outside investors held the non-voting shares, which were called preferred shares,
and had no say in the election of the board of directors. At the end of 2002 ,
! Aracruz was managed by a board of seven directors, composed primarily of
representatives of those who own the common (voting) shares, and an
executive board, composed of three managers of the company.
When voting rights vary across shares, incumbent managers can consolidate
their hold on a company with relatively small holdings. This reduces the power
that stockholders have in these companies.
Differences in voting rights are common outside the U.S. In Asia and Latin
America, incumbent managers or family members can control companies with
relatively small holdings with complete impunity.
