Controlling firms through the majority voting rule

Pyramids, cross-ownership, rings and other complex features inducing control tunnelling are frequent in the European and Asian industrial world. Based on the matrix methodology, this paper offers a model for measuring integrated ownership and threshold-based control, applicable to any group of interrelated firms. In line with the theory on pyramidal control, the model avoids the double counting problem and sets the full control threshold at the conservative—but incontestable—majority level of 50% of the voting shares. Any lower threshold leads to potential inconsistencies and leaves the observed high level of ownership of many dominant shareholders unexplained. Furthermore, the models leads to ultimate shareholders’ control ratios consistent with the majority voting rule. Finally, it is applied to the Frère Group, a large European pyramidal holding company known for mastering control leverages.