Golden shares: a tarnished solution that smacks of protectionism

State-held shares are back on the agenda. Popular during Europe’s wave of privatisation in the 1970s and 80s, so called golden shares — spezialaktie in Germany — allowed governments to wield control over a slew of public companies including utilities and oil and gas majors. By far the bulk had been redeemed by the turn of the millennium.

With globalisation in retreat and protectionism firmly re-ensconced, British politicians are hoping to spark a revival. The defence committee wants them reinstated across defence companies, irked at US private equity owned Cobham’s $3.6bn bid for Ultra Electronics. More speciously, MP Tom Tugendhat is angling for a government share — and a 25.1 per cent stake — in Arm, the chip designer, which owner SoftBank plans to list in New York after its planned $40bn sale to Nvidia collapsed. Echoing Washington and Beijing, he argues that national security is part and parcel of technological leadership.

State shares, like those held by tech founders, take a toll in terms of performance and free markets. An asymmetric veto on takeovers deprives other shareholders of the opportunity to sell; a particular handicap in the UK’s M&A-heavy market. Take the redemption of golden shares in water and electricity utilities in the mid-1990s. To the dismay of politicians, this unleashed a flurry of bids and within two years all but one of the 12 regional electricity companies had been flogged.

The European Commission, more concerned at the impediment to the free flow of capital, was largely successful in stamping them out although holdouts — especially in the UK — remain. These include BAE and Rolls-Royce, both of which operate defence capabilities.

There is a case to be made for government vetoes when it comes to national security. Golden shares also have a use elsewhere, such as fostering environmental or social missions. The Thomson family’s founders’ share in Thomson Reuters, designed to safeguard independence and lack of bias in reporting, also makes sense. Slapping similar government rights on to tech companies does not.