Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Thursday, April 12, 2012

voting your shares


Its that time of year when shareholders are receiving ballots to vote on board members, compensation opinions and other matters in the companies they own. It may not seem that your individual votes really matter in the grand scheme of things, after all, you only own a few shares of millions, and the issues to vote on are pretty tame anyway (a pre-defined slate of board members, an auditor selection and maybe a few shareholder calls for more transparency in various areas). It is important, however, that you have and exercise that right.

A shareholder in a company is a shareholder in the economic interest of the company. When the company makes money, you have a share in that. Shareholders also have a share in the running of the company - this is where your vote comes in. Matching control of the company to economic benefit is very important. It would be silly to have a company where one person only cares about the money and not the operation and another person only cares about the operation but not the money. One has no way to carry out their desires, and the other has no profit motivation!

Google has a dual share srtucture. There are about 268M shares of their Class A stock and 67M shares of Class B stock. The Class A shares have one vote each, while the Class B shares have 10 votes each. According to their latest 10-k filing, Larry, Sergey and Eric held 92% of the Class B shares. This keeps control of the company effectively in their hands, with about two thirds of the total votes in those three hands.

As you can see, this puts the control of the company in the hands of a few people. This was done to insulate the founders from nefarious "short term demands" of those pesky, finicky shareholders.

Now Google is distributing a new share, Class C, for each share of Class A or B stock. For the moment, this keeps economic and control interests exactly the same. Class C, however, has no voting rights whatsoever. Google intends to use these for its equity compensation and possible acquisitions so that current voting power will not be diluted. Going forward then, control shares will not be diluted, but economic share will be. Hopefully, they will not be too reckless wielding this new paper even though it won't come back to bite in the form of less control. This makes Class C shares much less attractive for a company being acquired, however.

It is a good step that Google will stop diluting the voting rights of current share holders, but their structure is still not the most shareholder friendly.

One account that I manage is long GOOG.