In June, the White House announced it had acquired a “golden share” in Pittsburgh-based

United States Steel Corp.

as part of a takeover by Japan’s largest steelmaker, Nippon Steel Corp. The deal gives the U.S. government sweeping rights over U.S. Steel’s governance and business decisions. Here, the Financial Post explains how a golden share works and why this arrangement is a little unusual.

What is a golden share?

“A golden share typically refers to a special class of ownership stake in a publicly-traded company reserved for a government,” writes Sarah Bauerle Danzman, an associate professor at Indiana University and a non-resident senior fellow at the Atlantic Council, who specializes in the political economy of international investment and finance.

Golden shares may be used by governments in deals related to national security or protecting vital industries such as defence, aerospace, energy or telecommunications.

Golden shares flourished in the 1980s in the United Kingdom when then–prime minister Margaret Thatcher’s government moved to privatize state-run companies. Today, the U.K. government holds golden shares in several entities, including aerospace and defence companies Rolls-Royce Holdings PLC and BAE Systems PLC, air traffic control provider NATS Holdings and the Royal Mail postal service.

The Brazilian government has a golden share in aircraft and aviation systems manufacturer Embraer S.A., while China holds a stake in tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

What does the U.S. get out of the deal?

In a press release outlining the deal’s terms, Nippon said the U.S. government will have the right appoint one independent director to the company’s board.

Nippon will also need permission from the president (or a designated appointee) to reduce its committed capital investments, change U.S. Steel’s name or move its headquarters, redomicile the company outside the U.S., transfer production or jobs outside the country, acquire competing businesses in the U.S. or make decisions about closing or idling existing manufacturing facilities.

Nippon has committed to keeping U.S. Steel’s headquarters in Pittsburgh and making approximately US$11 billion in new investments in the steelmaker by 2028. A majority of the company’s board of directors will be U.S. citizens, as will its chief executive and other “key management personnel.”

Golden shares can include a financial stake, but that’s not the case with the Nippon deal. The U.S. government didn’t invest any money in U.S. Steel and won’t receive any equity.

How common are golden shares in the U.S.?

Golden shares aren’t common in the U.S., which has typically championed free and open markets.

However, it’s not uncommon for the Committee on Foreign Investment in the United States (CFIUS) to propose mitigation measures if it believes a particular transaction poses a national security risk, said lawyer Anthony Rapa, a partner at Blank Rome who advises companies on cross-border trade issues including CFIUS investment screenings.

Rapa said the spectrum of measures in a national security agreement may include things like requiring a certain number of board members to be U.S. citizens, as is the case with the U.S. Steel deal.

“You could see things like, for example, limitations on access the foreign investor might have to personal data that’s stored in the U.S., (or on) integration of IT systems,” said Rapa. “You could see a requirement to continue to supply to the government, if the U.S. business has been a government supplier over the years.”

What makes this golden share deal different?

This agreement has two distinct aspects, said Bauerle Danzman. The first is that steel isn’t considered critical infrastructure, and the sector isn’t deeply embedded in the U.S. defence industrial base that supplies materials, products or services to the U.S. military.

“This type of arrangement is being used for a company that doesn’t fit the normal kind of conditions that would necessitate CFIUS to put those mitigation terms in place,” said Bauerle Danzman.

The second is how much of the national security agreement has been codified into the articles of incorporation of U.S. Steel itself, including giving President

Donald Trump

 this authority for as long as he’s president.

“It’s really concentrating the power very directly into the person of Donald J. Trump, as opposed to the president more broadly, or to the parts of the executive branch that would have the delegated authority to do this,” said Bauerle Danzman.

What does this mean for foreign investment in the U.S.?

The golden-share deal may give foreign companies pause about investing in the U.S., said Bauerle Danzman.

“Whether it will fundamentally change decision-making depends a lot on, is this a one-and-done deal? If we see more deals like this being struck, it certainly could be chilling,” she said.

Not all foreign investments fall under CFIUS’s purview, and not all deals require filing for a CFIUS review. Rapa said he doesn’t think the Nippon-U.S. Steel deal will chill foreign investment but could make other countries recalibrate their decision making around how to engage with CFIUS.

“I do think there’s going to be heightened sensitivity to the possibility of CFIUS review and more front-end strategizing and maybe even just leaning in on proactively making filings to try to address these issues head on and not deal with any surprises down the road,” said Rapa.

The golden share is one of several provisions included in bilateral trade deals since January compelling foreign companies to invest a certain amount of money in the U.S., said Aaron Bartnick, a former White House economic security official in the Biden administration and current fellow at Columbia University’s Center on Global Energy Policy.

Overall, Bartnick said it signals a “remarkable shift” in America’s approach to capital markets and foreign investments.

“Right now, foreign investors price in very little to zero friction in investing in the U.S.,” said Bartnick. “If they find that friction is going up, then it’s very logical to expect that we would see some combination of less foreign investment on less favourable terms with more restrictive provisions, and that is not something that American businesses or consumers are used to.”

Are there any examples of golden shares in Canada?

Canada has Crown corporations, which function like private companies but are fully owned by the government. Since the 1980s, federal and provincial governments have sold off a handful of Crown corporations but haven’t used the golden share mechanism to retain long-term control over the direction of the privatized businesses.

One of the country’s most well-known examples is Petro-Canada. After former prime minister Brian Mulroney’s government initiated privatizing the oil and gas company in the early 1990s, the federal government gradually sold off its majority stake and finally relinquished its remaining shares in 2004. Today, Petro-Canada is a subsidiary of Alberta-based Suncor Energy Inc.

Other publicly-traded Canadian companies such as Air Canada, Canadian National Railway Co., Cameco Corp., Telus Corp., Emera Inc. and Hydro One Ltd. were born out of former federal or provincial Crown corporations that were privatized, but golden shares weren’t used in those transactions, and the government doesn’t hold any stakes in the companies.

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Like the U.S., the Canadian government screens foreign investments for national security risks. Under the Investment Canada Act, the federal government has blocked acquisitions or ordered foreign companies to dissolve their Canadian operations in the mining, critical minerals and technology sectors. Notably, TikTok app creator ByteDance Ltd. was ordered to close its Canadian division in 2024.

• Email: jswitzer@postmedia.com