Google Stock Split Retains Founders’ Control

by Matt Klassen on April 17, 2012

Following a report that Google’s net income has increased 61 percent over the first fiscal quarter, the search engine giant announced plans to split its stock, issuing a new class of stock to shareholders. Under the new plan, expected to come into effect in June, all current shareholders will receive one new share for every current share they own, effectively splitting Google’s overall stock price in half.

Under normal circumstances a stock split is viewed positively by Wall Street and shareholders alike, evidence that the company is doing very well and that future forecasts predict the stock will continue to grow. In a way, shareholders agree to take a hit on the current value of their Google stock now in hopes that it will reap rewards in the future.

But as one might expect, there’s nothing ‘normal’ about the circumstances surrounding Google’s proposed stock split, as the search engine giant has structured the plan in such a way that the new stock will be classed as non-voting, meaning the entrenched body of founders still control Google’s fate and the company’s “Don’t Be Evil” philosophy once again looks sorely out of place.

For months now Google shareholders have been clamouring for such a split, hoping the core group of shareholders would loosen its draconian grip on the company and open it up to other voices, in a fair democratic sort of way. While Google has listened to the call for the stock split, there’s nothing democratic about how the search engine giant will go about issuing the new shares.

In a letter by Google co-founders Sergey Brin and Larry Page posted on the company’s website, the search engine giant announced it will create a new class of share, a non-voting Class C share that will be traded independently of the company’s Class A voting shares on the NASDAQ. Class C shareholders will be able to purchase and trade their shares just as they would with any Class A share, the only difference is that Class C shareholders have no real say in the direction or operation of the company and hold no voting power.

While Google has come under fire for this distinctly non-democratic way of splitting its shares yet retaining control, company executives stand by the decision, saying its really in everyone’s best interests (shareholders especially) to have the company power structure remain intact.

The decision to maintain this ‘founder-led approach’ was defended by Brin and Page as the best course of action, arguing that the core leadership group of Google needs to be allowed to follow the company’s long term vision while being insulated from short-term investor pressure. To wit, Page and Brin pointed out that the success of projects like Android could have been derailed early on by short-sighted investors if the power was in the hands of the many.

In the end, I will admit that while the decision to issue non-voting stocks is unusual and retaining the power of its core founders group is certainly undemocratic, perhaps it’s not as evil as I first thought. In my mind, if there’s one thing missing from today’s tech and telecom markets it’s the willingness to risk and push boundaries, something investors hate. So I have to say, I laud the fact that Google is willing to take the heat from investors to allow its core leadership group to follow its collective dream, noting again as a sidebar that it’s also a recipe for how company’s can  eventually become quite evil as well.

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Written by: Matt Klassen. Follow by: RSS, Twitter, Facebook, or YouTube.

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