Stock Voting Rights Plan Hits Brick Wall at Google
There are only moral victories for those behind a proposal to significantly reduce the voting powers of Internet search giant Googles top three executives.
The issue was defeated at Googles shareholder meeting on April 11.
The Bricklayers & Trowel Trades International Pension Funds ideathat buyers of any kind of Google stock get a single vote per sharewas considered a long shot anyway. And that was the point to the whole exercise.
Under the current setup, owners of Class A Google shares, like the pension fund, get a single vote per share.
But Class B stock owners, a category which includes Googles top executives, get a total of 10 votes per share.
The 1/10 rule puts a lot of voting power unfairly into the hands of a few, the pension fund argues.
At Google, CEO Eric Schmidt and co-founders Larry Page and Sergey Brin get to cast 66.2 percent of all the votes, although they together own just 31.3 percent of the stock.
That means that without the top threes consent, any proposal is defeated. And as Google indicated here, the top three are against changing the 1/10 rule. So, it seems, game over.
The consolation prize here is knowing that if the votes were leveled, the proposal would have a good chance of passing, said Jake McIntyre, the union pension funds assistant to the secretary-treasurer.
So in a way, by losing, the pension fund is proving its case.
"Even though theres a large number of outstanding shareholders [who] have some serious issues with dual-class share system, they dont have a choice," he said.
"Although were well aware that the proposal is unlikely to win a majority vote, due to the existence of the very dual-class system were seeking to abolish, we believe that the issue is important enough to raise."
The upside to the 1/10 rule is absolute power in the hands of the executives with a clear track record of often phenomenal results. Also, it makes Google a difficult target for a hostile takeover, CEO Eric Schmidt noted April 9 during Googles annual press day event.
But theres also the possibility of an unhealthy inbreeding of ideas, the pension fund alleged.
In addition, theres no guarantee that if Googles founders retire or move away that co-founder Sergey Brins replacement will have the same vision and focus. But he or she will have the same number of votes.
A growing number of companies have a one share/one vote setup, and there are similar proposals by shareholders at cable giant Comcast.
And the one share/one vote idea has the support of the Institutional Shareholder Services, one of the leading opinion-for-hire companies used by large-scale investors.
In a report recommending a vote in favor of the proposal, ISS wrote that Google "management owns the supervoting stock" and approving the proposal means "voting interests proportional to economic interests."
With all this going on in the background, Google hasnt campaigned against the idea other than to note in proxy materials that its board does not support the pension funds idea, according to a source familiar with Googles actions. So it, too, is apparently expecting a victory.
And with good reason: Even with most other institutional investors behind its idea, the pension fund proposal is likely to only garner about 10 percent of the votes, McIntyre predicted days before the May 11 vote. A majority is required.
"We expect to lose," he said.
Editors Note: The story was updated to reflect that the challenge to the two-tier voting structure failed.
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