BGN Entrepreneur

One of the most important issues in Google’s corporate governance is its issuing of dual-class structure in 2004.
When the company went public, it broke the tradition of the Wall Street by using Dutch auction to sell $1.67 billion IPO at the share price of $85. It immediately became one of the most highly-valued companies in the world with the worth of $23bn. The internet company raised the dual-class equity structure designed to give voting control to specific shareholders. It means that each of the class-B shares reserved for Google insiders would carry 10 votes; while ordinary class-A shares, which is a second class of shares sold to the public, would get just one vote.
Usually, for technology companies, it’ll be more motivate for the shareholders especially the employees to have an equal voting share. However, it’s common and very important for the media business to have dual-class equity structures in order to allow the companies to concentrate on the core, long-term interest in serious news coverage, despite fluctuations in quarterly results, and to facilitate timely decisions of the top managers in fast-changing situations.
Comparison of Companies’ Characteristics:
1. Characteristics of Other Internet Companies

• Management was mainly committed to leveraging leading-edge technology.
• Focuses more on the sustaining upgrade of its hardware and/or software technology.
• Teamed with IT companies in developing strategic alliances in developing, especially in the aspect of R&D.

2. Characteristics of Google

• Its longer-term opportunity was targeting ads.
• Its mission is constructing media platform for entertainment, offering better, more comprehensive overall experience for users to get information, & providing new chances for businesses of all sizes with measurable results to distribute ads to a vast audience.
• It focuses more on the upgrade of its advertising products, by experimenting with ads formats including banner ads & video ads.
• It teamed with PC Magazine and other publications to resell print ads to paid-listing advertisers.

Google decided to raise a dual-class equity structure, as the company defines itself more like a media business than a common technology companies.

Advantages:
It’s easy for the companies with dual-class share structures to be disliked, however, the ideas behind have their own reasons. The most important one is its aligning with the idea of separation of owners/shareholders and management in modern corporation.
Dual-class equity structure will ensure that the founders and top executives can still keep tight control of the company. The listing of such unequal voting shares, or super-voting shares, is primarily created to satisfy owners who don’t want to give up control but do want the public equity market to provide financing. Competing with big successful IT companies such as Microsoft in business, without firm control of the company, Google will probably face being merged or acquired by magnates in the industry.
e. Due to the continuing vast investment in improving its server, the operational cost of Google went high in 2007. The EPS of $3.79 in Google’s financial statement for the 4th quarter of this year is so disappointing that it’s far below the previous market expectation. After the establishment of this, the share price of Google fell by 7% to $524.6. However, with the dual-class equity structure, the company’s further business strategy was able to stay unaffected by this drop in share price.
Besides, as the shares that provide extra voting rights cannot be traded and once they are issued, companies cannot reduce the existing shares’ voting rights or issue other new classes of superior voting shares, it ensures Google to have a set of loyal investors during rough patches. In many practical cases, company performance may benefit from the existence of dual-class shares. Many big famous American companies do list dual-class shares, Ford for example.

Limitation:
There are a series of reasons that this dual-class structure isn’t welcomed.
First of all, it’s so complicated that even in the application to list, Google Inc. needed to spend so many pages to explain the different structures of the shares of two classes.
Secondly, Google’s management was secretive with outsiders, which frustrated prospective investors. Many investors got really upset about the issuing of unequal voting shares as it can be seen as downright unfair. With few constraints placed on the managers with super-class shares, they may spin out of control. As power is actually handed over to a select few, who are then allowed to pass the financial risk onto others, even some shareholders of the company doubt if the decision made by just core founders in a company of around 1900 employees will be good enough. The structures may allow bad decisions to be made with few serious consequences for the management.
These limitations all affected Google especially in its IPO process. The company initially planned to issue 25.7 million share at the price range of $108 to $135, however, the actual IPO price per share then finally fell to $85 and the scale of the IPO was greatly reduced compared to its original plan.
So the policy actually engendered an inevitable backlash.
Consequently, because of Google’s concentrated control, it faces many problems and pressure. Many of its advertisers charging that the company neglected customer service, other business partners criticized the management to be self-centered, and dangerously cocky. Pundits in the industry warned about its ever-expanding scope and enormous influence. Even some foreign governments expressed their concerns on this.

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