Working Control

Working control is a situation wherein a minority shareholder or shareholders have enough voting power to influence or determine corporate policy. This exists in corporations with widely dispersed share ownership where no single individual has a majority interest, meaning ownership of 51% or more of the voting shares. An individual shareholder with a 20% stake in a company often controls a large enough position to have working control. Other times, it requires a group of shareholders working in concert to take control. 

Working control exists when a minority shareholder or multiple minority shareholders unite to take a controlling interest in a corporation. The opportunity for minority shareholders to gain this control is exhibited in corporations where there is no dominant majority (greater than 50%) shareholder. While there are no official benchmarks for defining working control, 20% ownership is often considered large enough to exhibit this level of influence. In this case, companies must list the individual investors with working control on their financial statements. 

Working control in some industries like technology is not a common occurrence. Founders of Facebook (FB) and Google (GOOGL), for example, have sat at the helm of their respective companies since day 1. Therefore, they still control a majority of the voting shares while early investors likely lay claim to a large part of the remaining voting stake. In fact, Mark Zuckerberg controls over 80% of the voting shares in Facebook, so any matters of change or direction must be approved by him.

Where working control emerges is with companies in legacy industries that experience some turnover at the C-level or board of directors. In addition, hedge funds, mutual funds, and private equity firms often obtain working control of a stock before launching a proxy fight with the current management team. 

Having working control of voting shares gives the person or group massive influence over the operational and strategic decision making process. If that individual believes the company should pursue a project or withdraw from an existing one, they have the power to jumpstart those efforts on their own. In addition, it grants a person to take a leadership position on the board of directors and make key operational hires in the C-suite. But this also poses a problem for the company. When one person makes all the decisions, they may overlook or ignore good ideas in favor of their own. That can lead to poor organization decisions or inefficient allocation of capital.