Saturday, April 15, 2006

One share one vote?

Today I received a proxy statement for Google's Annual Shareholder Meeting. The only thing I stumbled upon was this question:
STOCKHOLDER PROPOSAL TO REQUEST THAT THE BOARD OF DIRECTORS TAKE THE STEPS THAT MAY BE NECESSARY TO ADOPT A RECAPITALIZATION PLAN THAT WOULD PROVIDE FOR ALL OF THE COMPANY'S OUTSTANDING STOCK TO HAVE ONE VOTE PER SHARE.
According to Google's proxy statement, Larry Page, Sergey Brin, and Eric Schmidt (founders and CEO) own only 25.5% of Google, Inc. (as of 3/17/06). Together with the rest of their Board of Directors, they own just under 30%. You won't see those percentages anywhere else, and even if you do, they'd carry as little weight as they do here because the triumvirate holds 84.8% of the special privately traded Class B stock. They are convertible into Class A stock for sale, but if held, they count 10 times as much as the Class A shares that you and I can buy on NASDAQ. I did some more arithmetic and figured that the combined vote of Larry, Sergey and Eric's Class A and B shares is equal to more than two thirds of any corporate vote. Since we know that the directors are recommending against the above proposal, barring Larry and Sergey (themselves directors) both voting for it, the probability of the above motion passing is zero.

Whether I say yes or no to the above question is clearly not going to make a difference and even if it did, it'd be 1 out of 1098435728. I'd like to put this in a bit of perspective, though. You know those people who paid 85 dollars for a share of Class A stock back in 2004? They all knew what they were getting themselves into because they were required to read the prospectus that made it all very clear in the first or second page.

First of all, unless I think the company's doing a terrible job, I don't see how people would change their minds about increasing their power to decide who serves on the board of directors. Second, their supply of Class B stock (which is can only be publicly traded as Class A) is disappearing with every conversion and subsequent sale as Class A stock. Larry and Sergey are unlikely to eternally hold this stock, and over the past 2 years, Larry and Sergey sold about 18% of their Class B stock. Thirdly, any fair recapitalization would probably involve either a conversion of the super shares into a greater number of regular shares thereby increasing the number of shares and potentially decreasing the price.

There were a number of other things that crossed my mind as I considered my choice. One of which was that if we can't trust people make decisions about who would best run a search company, how can we trust them to make decisions about who to run our countries? Didn't Google recently kowtow to China and give in to the Communist government (I happen to think that exposing more of our information economy to more people is good, btw)? These issues aren't exactly analagous due to the distinctions between a corporation and a polity. Corporations are at the mercy of consumers. The shareholders control the corporation by virtue of property rights, because they either started the company (Larry and Sergey) or the chose to pay for a part of it (Class A shareholders). We can choose who we give our patronage. We don't have to use Google. In contrast, we are all citizens of our respective countries, in my case, the United States. No one can buy and I can't (and won't) sell my citizenship. But, I sure as hell (well, sure as heck) can sell my share in Google.

Essentially, Google is not a completely publicly owned company and I'm assuming few are. I don't presume to know a lot about finance, but having read what Google's asked its shareholder to read, I agree with their recommendation.

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