From 3rd April onwards, Google will be initiating a new plan for creating a new class of non-voting capital stock, which will have a separate listing on the stock exchange. All existing stockholders will be provided some of these shares through a stock dividend. This means one new share will be awarded from the non-voting stock to the owner of one existing share of the company. In this manner, investors will be able to double the number of shares that they held in the company before this stock split. According to Google, this two-for-one stock split is something that investors have longed for.
Several corporate uses can be made with these non-voting shares such as equity-based compensation, which would have diluted the corporate governance structure of the company otherwise. This plan seems a bit strange to people and both media and investors have gone a little crazy in trying to understand why the company chose to undertake it. There are outright disagreements and even misinterpretations that have occurred as a result. This is because the voting authority of Larry Page and Sergey Brin, founders of the company and that of current chairman and former CEO Eric Schmidt will be solidified because of the split. There is doubt whether this will be a good or bad thing.
Page, Brin and Schmidt have held a near-controlling or controlling power at Google for a long time and this luxury has been given to them thanks to the dual-class stock structure of the company. Class B shares are owned by the three, which have voting power 10 times more than that of Class A stock. Until April 3rd, it was the Class A stock that was traded under the ticker GOOG on the public markets. After the split, these shares will be traded under a new ticker GOOGL, while the old ticker will be given to the new Class C shares.
In 2004, Google’s founders were careful in arguing in favor and explaining the system of dual-class shares when the company was getting ready to go public. The basic purpose was that Google wanted to enjoy all the benefits that public ownership would provide, but weren’t willing to jeopardize their own authority for the company’s strategy and direction. 37.6% of the company’s voting power was held by Brin, Page and Schmidt after the IPO while the remaining 61.4% had been held by the directors and executive management team.
Ostensibly, the power structure will remain unchanged because of the stock split and would only work to preserve the voting power of the people already in charge. Years of stock-based acquisitions and compensations ended up diluting the voting authority of Google’s principals and their grip over the company would have loosened gradually if they hadn’t issued this non-voting stock. This may seem as a contriving way for executives to try and maintain their control, but it is not that problematic because Brin, Page and Schmidt have been leading the company and it has worked out well so far for one of the world’s greatest and largest technology companies.