April 12, 2006 5:05 PM PDT

Google to defend dual-class stock structure

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A union pension fund holder of Google stock wants the company to eliminate its dual-class stock ownership structure, which gives majority control of the search giant to its three top executives, according to a regulatory filing released by Google on Thursday.

However, Google's board of directors is advising that shareholders reject the motion at the company's annual shareholder meeting scheduled for May 11. A Google representative who was asked to comment on Thursday referred to the company's proxy statement from when it was preparing to go public in 2004. The proxy defended the dual-class stock structure.

The Bricklayers & Trowel Trades International Pension Fund, which owns 4,735 shares of Google's Class A common stock, has informed Google that it will submit a proposal urging shareholders to adopt a recapitalization plan that would provide for all of the company's outstanding stock to have one vote per share. Under the current structure, Class A stock has one vote per share and Class B stock, owned only by Chief Executive Eric Schmidt and founders Larry Page and Sergey Brin, has 10 votes per share.

"By their ownership of 86,753,907 shares of Class B common stock, three of the company's executives (Eric E. Schmidt, Larry Page and Sergey Brin) controlled 66.2 percent of the total voting power of all the company's shares...even though they owned only 31.3 percent of the total shares outstanding," the proposal says, according to Google's filing with the U.S. Securities and Exchange Commission.

"We believe this disproportionate voting power presents a significant danger to shareholders. As Louis Lowenstein observed in 'What's Wrong With Wall Street' (1988), dual-class voting stocks like our company's reduce accountability for corporate officers and insiders," the union pension fund said. "In our view, the danger of such disproportionate voting power was illustrated by the recent fraud charges brought against top executives at Adelphia Communications and Hollinger International."

In his founder's letter from 2004, Schmidt said the company was adopting a dual-class stock structure to make it harder for outside parties to take over or influence Google and to make it easier for management to follow a long-term, innovation-based growth strategy.

"While this structure is unusual for technology companies, similar structures are common in the media business and (have) had a profound importance there," Schmidt wrote. "The New York Times Company, The Washington Post Company and Dow Jones, the publisher of The Wall Street Journal, all have similar dual class ownership structures. Media observers have pointed out that dual class ownership has allowed these companies to concentrate on their core, long-term interest in serious news coverage, despite fluctuations in quarterly results. Berkshire Hathaway has implemented a dual class structure for similar reasons.

"From the point of view of long-term success in advancing a company's core values," he said, "we believe this structure has clearly been an advantage."

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6 comments

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Google is right
It is pretty obvious that Eric Schmidt and Larry Page do a better job steering Google than the "Bricklayers & Trowel Trades" group would.

It is all fun an games till some asshat investor says "1413435626346 hits per day + popup ad on front page = profit!!"
Posted by Dachi (797 comments )
Reply Link Flag
Sigh... another typical kid who still don't get it.
Let me get this straight:

You're saying it's ok to take other people's hard earned money (billions of $$$ in this case) and than tell them to go punt?

Because it's so much more "fun an games" without these people "butting" into your business. Even though they paid money?

Still sucking off of your folks' credit cards huh?
Posted by kamwmail-cnet1 (292 comments )
Link Flag
Want protection from outside influence?
Then remain a privately held company. If you want outside cash,
then shareholders rightfully demand influence. You can't have it
both ways.
Posted by chassoto--2008 (71 comments )
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They knew the risk.
Here's my feeling, they purchased the stock, and when they did they know how the company was structured. If they did not agree with the structure they should NEVER have purchased the stock, but they did and now they want to change the whole structure.

Its the same kind of stupidity as a person buying a blue honda and then demanding weeks/months later that the car should have been red and honda should repaint it.
Posted by pmfjoe (196 comments )
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Good on them for trying to make a change but at the end of the day I won't feel too bad for them if they aren't successful. It's not like the dual-class setup was kept a secret or that anyone could claim they were 'tricked' or 'mis-informed' ...

If you don't like the share structure don't buy shares.

It's that simple.
Posted by coconutpunch (1 comment )
Reply Link Flag
You'd think that the alignment of the CEO and co-founders (and their $1) to the interests of the stock holders would be enough... These guys make no money unless the stock price goes up. I wonder if the bricklayers would be willing to match that bet and then vote on company strategy?
Posted by atraides20 (1 comment )
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