Ownership Share and Control
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When FamilyLight sm discusses disclosure of ownership share and control, in most cases the situation is very straightforward.  In a few cases it is fairly complex to determine how specific situations relate to our Guidelines and our Questionnaire

Our questions in our Questionnaire and our Guidelines focus on above 5% and 50% shares of ownership and control. Usually we are unconcerned about ownership and control of 5% or less,  but when no single person or organization owns 5% or controls 5% we want to know about some of the largest shares of ownership and/or control. 

For that reason we will clarify these points:

  • What do we mean by control?

  • Clarification of what happens when there are no owners or investors over 5%.

  • Clarification of what we mean by any percentage level of control when that is not identical to ownership.

Note that percentages of ownership held by spouses or by two companies controlled from the same source or  a person and a company he or she controls or husband and wife together, should be treated a single holding for purposes of determining percentage control or ownership. 

Control seems like and obvious concept but there are ambiguities as to how to pin down percentages.  The fact is that any way we define control there are likely to be apparent contradictions.  In the simplest situations in investor owned organizations are controlled in proportion to level of investment. But that is before we consider that there is such a think as non-voting investment.  There is also the fact that businesses are not pure democracies but representative democracies, exemplified by the fact that boards of directors in corporations do not represent the interests of stockholders in the same proportion.  In not-for-profit corporations, there are no investors.

One might think that the control depends upon the governing board with each member having the same levelof influence.  That may be true in many situations, perhaps even most, but there is such a thing as weighted voting. There is also the matter that in many cases, seats on the governing board are controlled by an outside group.  So who is in control the governing board member or the person or entity that has the power of appointment.  When we look at partnerships, trusts, and Limited Liability Companies, the matter of control is much more complex and ambiguous. 

Our solution is to defy the laws of mathematics. When there is a credible reason to assume that some person or something holds a certain level of control, we simply buy into the assumption.  For example if not-for-profit-corporation A has a ten member board with  a one person one vote rule, it seems that each member has 10% control. Right? Not so fast. It seems that not-for-profit corporation B has the right of appointment of the incumbents of three of those seats.  So by our calculations that defy the laws of mathematics, each board member represents 10% control, and not-for-profit corporation B controls 30%, adding up to 130%.  So far as we are concerned not-for-profit corporation B plus  three board members it doesn't appoint represent majority control for our purposes. 

So for us, any reasonable basis for understanding that a particular person or organization has a certain percentage of control, we accept that. If the percentages of control add up to far more than 100%, we don't mind the mathematical absurdity.  If it looks like control at a certain percentage we treat it as control. 

When the percentage of either control, ownership, or investment is so diverse that in one or more of those areas, no one person or entity holds more than 5%, we take a different approach.  We have not been concerned with ownership, investment, and control of 5% or less because those sources usually don't have a lot of influence.  When ownership is that diverse we need to find a way to identify where the influence is coming from. Until we gain more experience, our approach is to request, in that case, disclosure of the largest owners and control sources to represent over 50% when all are added together. 

Let's unpack that. To determine who we want to know about, consider an imaginary list of owners and investors, ranked in order of size of investment from largest to smallest. We then want to look at the portion of that list from the top, until we have considered enough of them that the total ownership share of all together represents a majority.  Same thing with the idea of control.  So what do we do with a governing board of 30, with each member having equal weight?  No one has 5%, but there is no way to rank them.  In that situation when we ask for governing board members holding more than 5% control, we must accept the alternative of identifying all thirty board members. 

When percentage ownership and percentage control point in two different directions how do we resolve it? We go in both directions.  We already said we are ignoring the laws of mathematics.  So if investment/ownership points in one direction and other control factors point in another, we want to know about percentages over 5% either way of computing influence.

As we gain experience, we will be making adjustments. Maybe we will want to know about contributors to non-for-profits. Maybe we will want to know more about who holds debt.  We do want transparency about both the values behind the schools and programs, the threats to sound management.  We expect to get better at this as time passes. 

Last updated March 24, 2009; minor edit March 26, 2009


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