Paul Sakuma / AP
Workers ride bikes outside Google headquarters in Mountain View, Calif.
With its controversial new stock plan, Google may be going against its “don’t be evil” informal corporate motto.
The company announced a stock split Thursdaydesigned to preserve the control of co-founders Larry Page and Sergey Brin over the world’s leading Internet search engine. It lets Google issue new shares without diluting the two founders’ voting power, creating a new class of nonvoting shares that will be disseminated to existing shareholders in what is basically a 2-for-1 stock split.
Since it first went public in August 2004 in what was one of Silicon Valley’s most anticipated and debated initial offerings of stock, Google has operated with a dual stock ownership structure, where a company issues two classes of shares with different voting and ownership rights. The system allows the company’s founders and management to maintain control, but still solicit investments from the public.
Google’s stock structure has worried corporate governance experts, especially since the format has been adopted by a number of the new Internet technology firms now launching IPOs, including Facebook. Now Google has upped the ante by adding a third class of non-voting shares.
These experts say investors may be willing to ignore the corporate structure now because they are eager to purchase a hot Internet stock. They warn that if there is a crisis for the company down the road, investors will not have much of a say in its fate.
Page and Brin, together with Chairman Eric Schmidt, own about two-thirds of Google’s voting power. The company’s Class A stock has less voting power. The new type of shares, Class C, will have no voting rights at all.
“If you’ve invested in Google, you’ve known from the beginning that you’re a second class shareholder,” Mark Mahaney, an analyst with Citigroup, told CNBC Friday. “They’ve just made that a little more apparent.”
Wired Magazine’s Senior Writer Steven Levy said the stock plan may be Google’s way to send a signal to the market that it is ready to take on the new crop of internet companies now coming to market, especially Facebook, Levy said.
“Google is trying to send a message,” he told CNBC. “They’re saying we do have tricks.”
The stock structure adds to the lack of decision making on the part of investors Google, and it would likely have to be approved by Google’s board, Levy said.
“But Google’s board may be less independent than others,” he said, noting that Page and Brin hold 70 percent of the voting rights.
“Anything that happens at Google happens because [Larry] Page and [Sergey] Brin agree on it,” he said.
Google said Thursday it instituted its original dual-class structure to help it build a company designed for stability over long time horizons. That takes time and requires stability and independence, the company said.
“We recognize that some people, particularly those who opposed this structure at the start, won’t support this change -- and we understand that other companies have been very successful with more traditional governance models,” the company said in a letter to shareholders.
“But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users,” Google said.
Google shares were down about $21, or 3 percent, in midday trading after the announcement, to about $630 a share.
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