"Morfit is a 37-year-old activist investor whose employer, the private hedge fund ValueAct, acquired a 0.8 percent stake in Microsoft in August. That was enough to put Morfit on the board." Slightly OT, but how does owning < 1% of a company's shares qualify for a board seat? Can someone who knows about these things enlighten me?
1. Corporate boards should show a fair representation of the largest stockholders.
2. For a board with 100 members, it should be apparent that anyone with more than 1% of the corporation's stock must be given a place on the board. But this only makes a point and isn't a typical board -- 100 members is unwieldy.
3. Another case is one in which the majority of the corporation stock is held by many small investors and there are only a few majority stockholders. In this case, someone holding more than an individual investor but less than the majority investors may still earn a place, even on a relatively small board.
4. Another way to describe this is to take the number of board seats and distribute them among those individuals who hold the largest stock holdings, in declining order. For example, let's say there are ten board positions, five majority stockholders and a pool of smaller investors with quickly declining stock percentages. In this case, a stockholder with a very small stake might acquire a position on the board simply by being counted among the ten largest stockholders.