Googleâ€™s recent proxy statement included the below shareholder proposal submitted by the Bricklayers & Trowel Trades International Pension Fund.
RESOLVED: That the shareholders of Google Inc. (â€œthe Companyâ€?) 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 Companyâ€™s outstanding stock to have one vote per share.
Pension Fundâ€™s Supporting Statement
The Company has two classes of common stockâ€”Class A common stock and Class B common stock. According to the Companyâ€™s 2005 proxy statement (pages 26-27), Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law, and each holder of Class A common stock shall be entitled to one vote per share and each holder of Class B common stock shall be entitled to 10 votes per share.
The Companyâ€™s 2005 proxy statement also reveals that, by their ownership of 86,753,907 shares of Class B common stock, three of the Companyâ€™s executives (Eric E. Schmidt, Larry Page and Sergey Brin) controlled 66.2% of the total voting power of all the Companyâ€™s shares (page 26) even though they owned only 31.3% of the total shares outstanding (page 4).
We believe this disproportionate voting power presents a significant danger to shareholders. As Louis Lowenstein observed in Whatâ€™s Wrong With Wall Street (1988), dual-class voting stocks like our Companyâ€™s reduce accountability for corporate officers and insiders. In our view, the danger of such disproportionate voting power was illustrated by the recent fraud charges brought against top executives at Adelphia Communications and Hollinger International.
Raytheon, Readers Digest, Church & Dwight and Fairchild Semiconductor have eliminated stocks with disparate voting rights in order to provide each share of their common stock with a single vote. We believe the Company should also take this step in order to align the voting power of our stockholders with their economic interests in the Company.
According to the NYT, the proposal did not pass. This, of course, is not surprising considering Schmidt, Page and Brin control 66.2% of Google voting power. If I were a beneficiary of the pension fund or a Google shareholder, I would be annoyed that the pension fund spent the time and money to bring the proposal and caused Google to expend time and money to include it in its proxy. Further, invoking Adelphia and Hollinger seems disingenuous to me, as does characterizing the Google guysâ€™ ownership stake as â€œonlyâ€? 31.3%. More importantly, Google has had a dual-class capitalization since day one of being a public company, so the price paid by all purchasers of its publicly traded shares, including the pension fund, reflected a dual-class capitalization discount.