Why Google Is Issuing a New Kind of Toothless Stockby
Here’s a philosophical question Google investors can ponder this morning: If you own stock in the tech giant, would you rather have voting rights that are essentially worthless or ones that are literally worthless?
A new “C” class of Google shares will begin trading on Thursday under the familiar GOOG ticker. This stock gives its owners zero votes at the annual shareholder meeting. That sounds bad. In practice, however, the nonvoting shares won’t be so different from holders of Google’s “A” class shares, which get one vote apiece. Both groups are dominated by holders of the only shares that matter: class “B” shares with 10 votes each. Most of those are owned by Google’s founders, Sergey Brin and Larry Page.
Page and Brin aren’t satisfied with the 55.7 percent majority of votes they already control today. As Google issues less-potent “A” shares—to compensate employees or to finance acquisitions—the company’s founders have seen their voting power diluted. Now that the company is issuing the neutered “C” shares to ensure Page and Brin retain control far into the future, they’re free to create as many shares as they like without giving up an iota of their grip on Google’s direction.
Shareholders tried to object to this system at Google’s last meeting, casting 180 million votes in favor of a resolution that called for equal voting rights—more than triple the support any other measure received. Page and Brin probably had a good chuckle over that one. They recommended voting against the proposal and did so themselves—it failed abysmally, with 551 million votes against.
The new Google shares will sow a fair amount of confusion. With “A” shares starting to trade under the new ticker GOOGL, the Standard & Poor’s 500-stock index will have 501 components. But the new issuance will also help clarify, for anyone who wasn’t sure, that the technology industry is increasingly hostile to shareholder democracy.
Box, the cloud services startup, plans to go public soon with a dual-class structure, joining Facebook, Zynga, Groupon, LinkedIn, and other tech stocks whose voting rights are dominated by company founders. Alibaba, the Chinese e-commerce giant, plans to go public in the U.S. largely because Hong Kong’s stock exchange doesn’t permit dual-class structures. The practice has become more common since Google’s IPO in 2004. (Twitter’s more traditional share launch came as a notable exception in 2013.)
At Facebook, Mark Zuckerberg uses his majority control to do such things as buy messaging service WhatsApp for $19 billion and virtual reality headset maker Oculus for $2 billion with little input from his board or shareholders.
Typically, voting and nonvoting shares of a company trade at different levels. Google’s “A” and “C” shares are expected to trade at roughly the same value. If they don’t, Google has agreed to pay out from $300 million to $7.5 billion, using a sliding scale—a possibility some traders are preparing for.