This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
In the United States the well-established custom is to allow, for every share of voting stock, one vote in the election of directors and in the decision of other questions that come before shareholders. As a result, the larger shareholders exercise almost complete control. Not only do they possess the greater number of shares, but they have a large enough financial interest at stake to make it worth while for them to take an active part in the affairs of the corporation. The small holder, on the other hand, feels that he can exercise no real influence, and that it is not worth his while to attend meetings or even to send in a proxy, or written authorization, to some officer or other person present to act for him.
In the United States Steel Corporation those shareholders who own 1,000 or more shares each, have in the aggregate a larger number of votes than the vast majority of smaller stockholders. It is safe to assume, therefore, that even in so large a corporation these comparatively few men are the ones who are keenly and directly interested as shareholders, and take the trouble to try to elect directors who will represent their views. It is for this reason, primarily, that in the United States complete control of a corporation may be obtained by one man, or by a group of men, who own perhaps only a small percentage of its outstanding stock. This has been notably true of some of the large railroad systems. It is stated that at the time when George J. Gould was in undisputed control of the Wabash and the Missouri Pacific railroads, he and his family never had more than 12% of the outstanding stock. It is said that the control of a bank or a trust company may, under ordinary conditions of stock ownership, be retained by the holders of 30% of the outstanding stock.
In English practice a different principle as to voting is customarily, though not universally, followed. In order that complete domination by the large shareholders may be prevented, a limitation is placed on the number of votes that may be cast by any one shareholder; or, instead, a regressive scale is so arranged that the number of votes does not increase in proportion to the number of shares. This practice dates back several generations. The "Companies Clauses Consolidation Act" of 1845 provides that whenever no scale of voting is prescribed in the by-laws, every shareholder shall have one vote for every share he holds, up to 10; an additional vote for every 5 shares, up to 100; and an additional vote for every 10 shares beyond 100. The Sheffield United Gas Light Company allows a shareholder not more than 30 votes; the London Gas Light and Coke Company, not more than 10 votes; the Bristol United Gas Light Company, not more than 5 votes; the Black Pool Tower Company, not more than 20 votes. It is said that attempts to evade this restriction are uncommon and that attempts to purchase control of established corporations in order to bring about combinations, and for other purposes, are not nearly so frequent in England as in this country. There are obvious advantages in this practice that are well worth considering, particularly those that have to do with the enlistment of the active interest of the smaller shareholders and the interposition of obstacles to exploitation. It is quite possible that the practice might be adopted to advantage, especially by local corporations which may have meetings of shareholders from time to time, and in which the personal influence of these shareholders is of real importance and value.