End Dictatorship of Alphabet by Page and Brin
We recommend that this be done through a phase-out process in which the board would, at the earliest practicable time, establish fair and appropriate mechanisms through which disproportionate rights of Class B shareholders could be eliminated. This is not intended to unnecessarily limit our Board's judgment in crafting the requested change in accordance with applicable laws and existing contracts.
In our company’s multi-class voting structure, each share of Class A common stock has one vote and each share of Class B common stock has 10 votes. As a result, Mr. Page and Mr. Brin currently control over 51% of our company’s total voting power, while owning less than 13% of stock. This raises concerns that the interests of public shareholders may be subordinated to those of our co-founders.
When certain stock have more voting power than other stock, our company takes our public shareholder money but does not let us have an equal voice in our company’s management. Without a voice, shareholders cannot hold management accountable. For example, despite the fact that more than 85% of outsiders (average shareholders) voted AGAINST the creation of a third class of stock (class C) in 2012, the weight of the insiders’ 10 votes per share allowed the passage of this proposal.
On July 31, 2017, the S&P Dow Jones Indices announced that the S&P Composite 1500 and its component indices will no longer add companies with multiple share class structures. This change reflects a toughening stance by index firms and the investors they represent who increasingly emphasize the importance of corporate governance rights.
In reaction to the change at the S&P, the executive director of the Council of Institutional Investors (CII) stated: “Multi-class structures…rob shareholders of the power to press for change when something goes wrong, which happens sooner or later at most if not all companies…Shareholders at such companies have no say in electing the directors who are supposed to oversee management.”
CII recommends a seven year phase-out of dual class share offerings. The International Corporate Governance Network supports CII’s recommendation “to require to a time-based sunset clause for dual class shares to revert to a traditional one-share/one-vote structure no more than seven years after a company’s IPO date.”
Independent analysts appear to agree with our concerns. As of December 1, 2017, Institutional Shareholder Services (ISS), which rates companies on governance risk, gave our company a 10, its highest risk category, for the Governance QualityScore. ISS rates our shareholder rights and compensation a 10, and our board is rated a 9, also indicating relatively higher risk according to ISS.