Google held their annual stockholder meeting this week. This is always interesting given that the insiders–Schmidt, Brin and Page–control the voting stock. Meaning that the stockholder’s meeting could be held in a Google bidet as the millions of Google stockholders have absolutely nothing to say about how the company is run.
It’s not that stockholders don’t complain about this, it’s that it really doesn’t matter what anyone else thinks about anything. Here’s an excerpt from the meeting transcript that gives you a sense of why this matters.
The shareholder resolutions were moderated by David Drummond, Google’s SVP, Corporate Development and Chief Legal Officer. Here’s a nice picture of Drummond (to the right of Schmidt) advising his client to refuse to answer Senator Cornyn’s questions about Google spending $500,000,000 of the stockholder’s money to keep its senior management from being indicted for violating the Controlled Substances Act on a grand scale. You know, the investigation that launched a massive shareholder lawsuit for a host of bad acts by Google stockholders against the insiders, the insiders’ board of directors and Googles senior management including Sheryl Sandberg. (See Wired, How A Career Con Man Led A Federal Sting That Cost Google [Stockholders] $500 Million.)
David Drummond SVP, Corporate Development and Chief Legal Officer: Now the next five items to be presented today are all stockholder proposals. Our Board of Directors, you should know, has recommended unanimously that our stockholders vote against all five of these proposals that will be presented today. [And Drummond already has enough proxies in his pocket to override any of the proposal, so this is all just a kabuki dance of the highest order.] Now, the first stockholder proposal is being brought by Mr. John Chevedden, Mr. James McRitchie and the NorthStar Asset Management Funded Pension Plan, as the co-lead filers, and Sonen Capital as a co-filer. I believe we have Ms. Abigail Shaw, here is she, of NorthStar Asset Management and she’ll be presenting the proposal. Ms. Shaw, you have three minutes.
Abigail Shaw – NorthStar Asset Management
Good morning. My name is Abigail Shaw from NorthStar Asset Management in Boston, the beneficial owner of over $2.6 million of Google common stock. As Google shareholders know, Google has three classes of stock, Class A with one vote per share, Class C with zero votes per share and Class B [the insiders Schmidt, Page and Brin] with an overwhelming 10 votes per share which is closely held by management insiders. This discrepancy hands over a super majority of control of the firm to insiders, essentially making it impossible for stockholders to weigh in. [For example, weigh in on decisions like spending $500,000,000 of the company’s money to keep the insiders out of jail.] Yet the concern we raise here is not just about fairness, we are also concerned that insiders and management seek to insulate the governance of the firm from shareholder oversight.
Studies have shown that excessive voting control given to insiders leads to poor performance over the long term. In fact a study has reported that the more control that the insiders have, the more they can pursue strategies that are at the expense of outside shareholders. Studies have also shown that on average and over time, companies with multiclass capital structures underperform those with a one share one vote standard in which owner’s economic risk is commensurate with voting power.
In a world where our company’s primary purpose is to expand access to information and knowledge in an open and democratic way, limiting substantial shareholder input is wildly counterintuitive. We feel that shareholder value is best derived when insider voting control of the firm is separated from insider economic ownership. Economic ownership provides enough of a reward for management when stock prices rise. The current tri-class structure eliminates shareholder checks and balances over management decisions. Without a tally of one vote per share claiming that stockholders accepted or rejected a proposal means little more than that Mr. Page, Mr. Brin and Mr. Schmidt voted for or against it. [Like happened with this proposal, for example.]
We are very concerned that over the long term the use of insider control at Google will inhibit shareholders from weighing in on company governance and policy issues with detrimental effect on shareholder value over the long-term. We urge you to vote for proxy item number four. Thank you.
So when you’re dealing with Google employees and they seem arrogant, here’s why–the company is run as the personal fiefdom of Schmidt, Page and Brin. They’re just imitating the boss.