I read an interesting thing today. That Google's public offering prospectus indicates that the $2.7 billion or so of common stock they are offering for sale to the public will actually not give control of the company to those that buy it. Instead control will remain with those that own a different class of stock that will only be available to employees and current owners of the presently private Google Inc.
How does this work?
Well remember that a corporation issues shares to raise money and establish ownership of the company. The shareholders pay for the shares and in return literally own the company in proportion to the number of shares they hold. Normally, the ownership of stock lets the shareholders elect board members who in turn determine the CEO and how much various executives get paid. Thus although shareholders don't run the company, they technically get to decide who does.
However Google has decided, in offering its shares for sale publicly, that it doesn't want large institutional buyers and ficle street investors determining how to run its company. Although they still legally have an obligation to manage the company to enhance shareholder value, they want to be the ones to decide how that occurs and retain the ability to determine who is on the board and hence who is running the company.
They have achieved this by giving each share of stock owned by employees and the current owners ten times the voting power of shares that are going to be made available to the public. Hence the majority of voting rights will always remain tightly controlled and within "the company" as defined by employees and current owners.
If you believe in Google or are one of the employees or owners this is probably good. It gives you all the power to take $2.7 billion from public investors without any of the responsibility to do their bidding when it comes to running the company. But as far as I can see this all revolves around the enduring goodness of Google and if one day, some errant power came to control those "insider" majority voting shares, then the public owners won't have any way to do something about it.
Although this scheme is apparently not new and used by newspapers and some other companies, I believe it sets a dangerous precident of even further divorcing stock owners from the company they own stock of. If the Google manouver becomes more common place we could see a raft of publicly traded companies where the board feels complete empowerment to do as they feel with little or no worry about what investors might think.
What if, for example, the company were a chemical company and decided that the best way to make money was one that had some hideous environmentaly disasterous side-effects but, hey, to heck with it - why not? And what if the majority of common stock holders thought that was a really bad idea? Well in the Google scheme they could no longer get together and put some share holder initiative on the ballot and get it passed, they couldn't even successfully vote to fire the board. Their ownly possible recourse would be to just sell the stock - and presumably some other person with less scruples would come along an scoop it up and take the profit anyway.
Basically what Google has done just goes to show how undemocratic corporations are and how they are embarking on paths that make that even more so. Given that corporations are inextricably linked to our nations "democratic" process I think its a really, really bad idea that the actions of corporations are being removed even further from control of the public realm.
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