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What is Working Control?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 14 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Working control is a term used to refer to a situation in which someone owns or controls enough of a company's stock to determine company policies. There are several ways in which this can be achieved. People with this level of control can become a powerful force when it comes to shaping the policy and future direction of a company, and they are often people of interest as a result. Their votes and activities may be closely noted by people who are interested in knowing where a company is headed.

One way to get working control is to directly own 51% or more of a company's stock. Not uncommonly, when companies first go public, the owners retain working control. This is done to access funding without compromising the direction and values of the country by surrendering enough stock that someone else could theoretically gain control. Over time, this shareholder or shareholder group may sell their stock and give up their control.

It is also possible for a minority shareholder to have what is known as effective control. In effective control, although the shareholder does not have 51% of the company's stock, the company's shares are so widely distributed that a minority shareholder can effectively control the company. In addition, minority shareholders can cooperate to gain effective control, a tactic which is sometimes used when shareholders grow disgruntled with company policies.

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There are cases in which effective control alliances can be highly useful. Members of such an alliance may make a permanent or temporary agreement, depending on the situation and the circumstances. Sometimes outside groups lobby shareholders to consider grouping together to gain effective control for the purpose of publicizing a cause. For example, an animal welfare organization might lean on shareholders in a chicken processing plant to press for a vote to pass humane treatment standards. Using techniques like this, small groups can sometimes make their voices heard by big companies.

In some settings, rival companies may utilize working control to their advantage. For example, a company could quietly buy up stock to achieve effective control, and then force a merger or sale which will be in its interest. For this reason, companies try to be cautious about stock sales, and want to avoid the consolidation of power with a rival company. Once a company gains working control of another company, there may not be anything the company can do.

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