“We are creating a corporate structure that is designed for stability over long time horizons,” wrote Google (NASDAQ:GOOG) founders Sergey Brin and Larry Page in an open letter to potential shareholders in 2004, the year the company launched its initial public offering. “By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach.”
The deal was this: Google wanted to open its doors to all of the benefits public ownership without jeopardizing the authority of its core principals — Brin, Page, Eric Schmidt, and a handful of other key executives and directors — over the company’s direction and strategy. “After the IPO,” Page wrote, “Sergey, Eric and I will control 37.6 percent of the voting power of Google, and the executive management team and directors as a group will control 61.4 percent of the voting power. New investors will fully share in Google’s long-term economic future, but will have little ability to influence its strategic decisions through their voting rights.” There would be a dual-class stock structure, and Google’s top executives would maintain a controlling share of voting power through Class B stock, which have ten times the voting power of common Class A stock.
To say that the strategy has “worked out pretty well so far” would be an understatement. The IPO was launched at $85 per share in August of 2004, and by February 2014 the stock was trading over $1,100. Google’s corporate structure may be somewhat unusual (more unusual for tech companies at the time), but it has been a smashing success — a success maintained by the ability of Google’s top executive team to determine the direction and strategy of the company.
But the times, as they sometimes do, are a-changin’. The voting authority of Google’s principals has been diluted through years of stock-based compensation and acquisitions and the dual-class voting structure that has worked so well over the past decade won’t maintain its integrity forever on the current trajectory. To remedy this problem, Google announced “plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split-something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.”
In a statement released by S&P Dow Jones Indices (NYSE:MHFI), the company noted that Google’s new Class C stock will be added to both the S&P 100 and S&P 500 indices between April 2 and June 20. During this time, the indices will have 101 and 501 listings, respectively. S&P Dow Jones “the Class C shares will become the primary equity trading line for Google.”