Google's evil stock split
Count me in with Robert Cyran: there's something a little evil about the way that Google is splitting its stock, and in so doing creating a whole new class of non-voting shares. — There's a long history of such things: they were outlawed in the 1920s …
Context & Ripple Effects
The reaction to Google's first-quarter results and proposed new class of stock, announced April 12, 2012, has consolidated around governance rather than earnings: Bloomberg's pickup ran under 'Google Stock Plan Irks Governance Watchdogs,' and this Reuters column endorses Robert Cyran's framing that there is something 'a little evil' about handing shareholders a new class of shares with no vote attached.
What gives the criticism teeth is history — non-voting share structures were outlawed in the United States in the 1920s — so the story is travelling widely (Forbes, BetaNews, Datamation and others picked it up within a day) less as a capital-markets mechanic than as a test of whether founder-control norms can override a century-old securities principle.
First-order effects
- Larry Page and Sergey Brin's voting position becomes insulated from dilution: any future Google share issuance lands in a non-voting class, so the founders' proportional control no longer erodes as the company pays out stock.
- Governance watchdogs move into open opposition, turning what would normally be a routine corporate action into a contested proposal that Google must publicly defend.
Second-order effects
- Other founder-led technology companies gain a template: if Google's structure clears approval over watchdog objections, dual-class and non-voting issuance becomes far easier to justify to boards and bankers elsewhere.
- Institutional investors and index holders are forced to take an explicit position on voting rights, since buyers of the non-voting class absorb reduced influence while funding the same company.
Third-order effects
- If the pattern holds, exchange listing standards and securities regulation face renewed pressure over non-voting stock — a quiet unwinding of the post-1920s consensus that such structures should not exist in public markets.
- Differentiated voting rights harden into a structural feature of large-cap technology governance, with public investors accepting diminished say as the price of access to founder-run growth companies.
The trend: Founder-controlled technology companies are normalizing multi-class share structures that entrench insider voting power, testing a governance norm that dates to the 1920s outlawing of non-voting stock.