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Google shareholder for change in vote structure

A union pension fund has proposed that Google Inc eliminate a two-tier voting structure.

india Updated: Apr 13, 2006 12:48 IST

A union pension fund has proposed that Google Inc eliminate a two-tier voting structure, which would dilute control of the company's top three executives, who hold a privileged class of stock, the company said in a regulatory filing on Wednesday.

The one share, one vote proposal by the Bricklayers & Trowel Trades International Pension Fund will be put to Google shareholders at the company's annual meeting May 11.

Google's triumvirate -- co-founders Larry Page and Sergey Brin and Chief Executive Eric Schmidt -- hold overwhelming voting power through a two-tier voting structure. Page and Brin hold around 28.8 per cent and 28.7 per cent, respectively, of Class B voting shares, giving them majority control of Google.

Schmidt holds 11.3 per cent of votes. Collectively, the three retain more than two-thirds of all votes, the filing said.

Under the current structure, each Class B Google share has 10 votes, while Class A shares carry only one vote per share, giving insiders absolute control.

In a filing with the US Securities and Exchange Commission, Google said it opposed the proposal by the pension fund, a holder of 4,735 shares of Class A common stock, to force Google to accept a new structure in which each share held, no matter what its class, would represent one vote.

"Most institutions frown on dual-class stocks," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "Two-tier stocks lessen accountability" of management, he said.

He was referring to institutional investment funds, which typically represent the biggest class of company shareholders.

"When your voting interest is divorced from economic interests you have potential problems," he said, pointing to corporate governance scandals at media companies Adelphia Communications Corp and Hollinger Inc where insiders manipulated company finances at the expense of shareholders of non-voting common stock.

Under the share structure Google established ahead of its initial public offering in August 2004, the company has a two-tier structure made up of Class A common stock available to public shareholders and a non-public Class B stock held by insiders in which company voting power is vested.

In the famous "Owner's Manual for Google Shareholders" filed as part of Google's IPO prospectus, Page argued that the company's "long-term focus" on "serving end users" required a dual-class voting structure to ward off hostile takeovers.

Noting that Google's business bridges the media and technology industries, Page said the two-tier structure was in line with media companies such as New York Times Co, although rare among technology companies. He also said he was inspired by Warren Buffet's Berkshire Hathaway Inc.

"We are convinced that everyone associated with Google --including new investors -- will benefit from this structure," Page wrote ahead of the company's spectacularly popular IPO.

The dual-class voting structure is one of the sources of conflict between Google management and Wall Street.

"I don't think in any company it is a good idea, not even for media companies, corporate governance expert Elson said, adding that: "Google isn't a journalistic company. It is a software portal."

Of Class A, non-voting common stock, Fidelity Investment funds held 11.2 per cent of shares, while Capital Research & Management Co held 7.9 per cent as of March 17, the filing said.

Among Google executives, senior vice president and sales chief Omid Kordestani holds 892,974 Class A shares, or more of the common stock available to public investors than the top three Google executives combined.

In total, officers and directors of Mountain View, California-based Google only hold 1.6 per cent of Class A common shares but 77.5 per cent of the Class B stock.