Quick facts
- What it measures: the distance between voting power and economic ownership
- Formula: voting power % minus economic ownership %
- Unit: percentage points, written
pp, carrying an explicit sign for any non-zero wedge- Range: -100pp to +100pp
- What it does not claim: that a wide wedge is bad governance
The Control Wedge is the gap between how much of a company someone votes and how much of it they own.
Control Wedge = voting power % - economic ownership %
The result is expressed in percentage points, abbreviated pp, and carries an
explicit sign for any non-zero wedge. A positive wedge means votes run ahead of
economics, which is the ordinary dual-class outcome. A negative wedge means
economics run ahead of votes.
The arithmetic is deliberately trivial. Everything that makes the number worth quoting sits in the definitions underneath it, because a metric a reader cannot reproduce is a metric a reader has no reason to believe.
The definitional rules
Each rule below is published rather than held internally, so that anyone holding the same filing can arrive at the same number or say exactly where we went wrong. The rules resolve, in order, what counts as ownership, what counts as a vote, who the holder is, and what the number is allowed to say about itself.
Economic ownership
Shares beneficially owned divided by total shares outstanding across all classes, as reported in the company's most recent proxy beneficial-ownership table.2 For a company that has not yet filed its first proxy, such as a recent IPO, the equivalent table in its registration statement or final prospectus is used instead, and the page carrying the figure says which document it came from. For an issuer that files no SEC proxy, the equivalent ownership disclosure in its home-jurisdiction regulatory filing is used instead, such as the ownership table in a French issuer's Document d'Enregistrement Universel (universal registration document). As with the proxy and prospectus cases above, what qualifies is a filed regulatory disclosure, not press reporting, an investor deck, or a company web page, and the page carrying the figure says which document it came from.
Only the numerator comes from the body of that table. The denominator is the all-class total shares outstanding, normally carried on the filing's cover page or in the table's footnotes; where that holder's own option-exercisable shares are added to the numerator under Rule 13d-3, they are added to this denominator too, as the Options rule below explains.
Voting power
The holder's shares multiplied by votes per share, summed across classes, divided by the same quantity summed across all outstanding stock.
"The holder's shares" here means shares actually issued and outstanding to the holder. It is not the option-inclusive beneficial-ownership figure used for economic ownership, because an unexercised option carries no votes. The Options rule below sets out what that difference does to the two halves of the wedge.
Where a filing reports the holder's voting-power percentage directly, that reported figure governs and we do not recompute it.
Votes per share come from the issuer's constitutive documents, the certificate of incorporation for a Delaware company or the equivalent instrument elsewhere, such as a French issuer's statuts. Delaware's default is one vote for each share, and the certificate can displace that default with classes carrying full, limited, or no voting powers, and with more or fewer votes per share than one.34
Controller attribution
Whatever the proxy's beneficial-ownership table attributes to that person, including family trusts and holding entities. We follow the filing rather than constructing our own attribution. Where a filing's attribution is itself contested, we say so in prose instead of silently picking a side.
Options
SEC beneficial ownership includes options exercisable within sixty days. Where the filing's beneficial-ownership table computes a holder's own percentage under Rule 13d-3, that computation deems the holder's option-exercisable shares outstanding for both the numerator and the denominator, and this metric uses the same denominator: all-class shares outstanding plus that holder's own option-exercisable shares, so the figure ties to the filing rather than diverging from it.1 We do not recompute to a clean fully diluted basis using every holder's options, because numbers that do not tie to the proxy read as errors to every reader who checks.
The two halves of the wedge treat those shares differently, and the difference is deliberate:
- Option-underlying shares count toward economic ownership, in both the numerator and the denominator, because we follow the filing's own Rule 13d-3 arithmetic for that holder.
- They do not count toward voting power, because an unexercised option carries no votes.
- Where the filing reports the holder's voting-power percentage directly, that reported figure governs and we do not recompute it.
This is the same principle as the rest of the page rather than an exception to it. The filing is followed where it states a figure, and nothing is silently recomputed against a different denominator than the filing's own. Because this metric mirrors the filing's Rule 13d-3 denominator for that holder, a beneficial-ownership percentage quoted directly from the filing and this metric's economic-ownership figure should tie; where a filing nonetheless states a different figure, the page says which one it is showing.
Range
-100pp to +100pp. A negative wedge means more economics than votes. It is meaningful and is never suppressed.
As-of date
Every published wedge carries the date of the filing it derives from. No undated number is ever rendered.
Eligibility
A company qualifies for a published wedge only if it has filed a beneficial-ownership table. This is the operative test rather than whether the company is publicly traded. A figure assembled from press reporting, litigation records, or secondary-market estimates is not publishable as a wedge.
A worked example
The company below is illustrative. It is not a real issuer, and the figures are constructed to make the arithmetic checkable rather than to describe anyone.
| Class | Shares outstanding | Votes per share | Held by the controller |
|---|---|---|---|
| Class A | 88,000,000 | 1 | 1,040,000 |
| Class B | 12,000,000 | 10 | 11,960,000 |
Totals: 100,000,000 shares outstanding, and 208,000,000 votes outstanding, being 88,000,000 from Class A and 120,000,000 from Class B.
- Economic ownership: 13,000,000 ÷ 100,000,000 = 13.0%
- Voting power: 120,640,000 ÷ 208,000,000 = 58.0%
- Control Wedge: 58.0 - 13.0 = +45.0pp
The controller's votes are 1,040,000 from Class A plus 119,600,000 from Class B. The ten-vote Class B is doing all the work here: it is 12% of the shares outstanding and 57.7% of the votes outstanding.
The claim the number makes is narrow and falsifiable. Votes and economics diverge by 45 points, on a stated date, in a stated filing, and anyone holding that filing can check the figure and say it is wrong.
What this does not measure
The wedge measures divergence. It does not measure whether divergence is justified.
A founder holding a large wedge may be the reason the company survived its first five years, or may be the reason its board has stopped asking questions. The number is identical in both cases. It is an input to a governance judgment and not the judgment.
Nor does it measure practical control. A holder at 34% of the vote with a supermajority charter provision and a staggered board may be harder to remove than a holder at 51% without them. The wedge is one figure from one table, and it is silent about the rest of the document.
Try it yourself
The calculator below runs the same arithmetic on whatever share classes you enter, so you can see the wedge move before you go looking for a filing.
Related reading
- Dual-Class Stock covers the structure that produces most large positive wedges
- Cumulative Voting covers a voting rule that changes what a given percentage can win
- Cap Table covers the private-company record that shows the same split long before any filing makes it public
- Proxy Fight covers the contest a wide wedge is usually designed to settle in advance