Free Form Friday: Share Class Structure

Today’s

Vocabulary

(1) S-1 Filing: The papers a company sends the government in America in order to start selling stock.

An S-1 filing describes a company in great detail. It helps people decide whether to buy stock.

(2) Dual-Class Share Structure: A system where some shares get more votes and some get less

Our dual-class share structure protects us from public opinion.

(3) Public Company: A company that is owned by shareholders.

Google became a public company in 2004. Before that they were a private company.

Today’s

Questions

1. How many votes does one share of Class B stock get at Google?

a. 0

b. 1

c. 10

2. Why does Google give different votes to different share types?

a. To stay independent from investors

b. To increase the wealth of the owners

c. A and B

3. Why might dual-class shares be a bad idea?

a. Pressure from the public might help the company

b. Owners will be influenced by the public

c. There could be battles when the owners die

7 ________________________

Free Form Friday

________________________

By Jeremy Schaar

Google has three classes of shares: A, B, and C. When it comes time to make decisions, you get one vote for every Class A share, ten votes for every Class B share, and no votes for every Class C share. Wait. What? Class A makes sense. 1 vote, 1 share. But Class B and C are weird, right? Class B shareholders get 10 votes and Class C shareholders get zero votes. Why?

It’s because Google’s founders–Sergey Brin and Larry Page–want to maintain control of the company. They don’t want investors to tell them what to do. So they gave themselves lots of Class B shares. Why?

In their S-1 Filing, here’s their explanation:

As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same. In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. …

If opportunities arise that might cause us to sacrifice short term results but are in the best long term interest of our shareholders, we will take those opportunities. We will have the fortitude to do this. We would request that our shareholders take the long term view.

Many companies are under pressure to keep their earnings in line with analysts’ forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction.

They feel that having a dual-class share structure will let them focus on the long-term instead of short-term profits. They don’t want shareholders to influence them

This isn’t a new kind of company structure. Traditionally, it has been for the media business. A newspaper, for example, wants to stay independent. They don’t want shareholders to influence their reporting of the news. So, the owners keep shares with lots of voting rights.

But these days more companies are using this structure. Facebook, LinkedIn, and Yelp all have the same dual-class share structure.

Is it a good idea? It depends on how much you trust Larry Page and Sergey Brin. It does seem like it’s a good idea for shareholders to pressure a company to make money, but maybe not. With the internet and more casual investors, maybe there’s too much noise, so it’s better for companies to stay independent.

On the other hand, do we really think that the average CEO doesn’t have enough power?

What do you think? As always, if you have any questions, please post them on the blog, Facebook, or Twitter.

And, by the way, if you have trouble understanding the blogs or LinkedIn groups, send me a message. I’ll be happy to help with lessons.

CHECK YOUR ANSWERS!

Answers To Today’s Questions

C, A, A

——————————————

You Can Do It All Yourself But You Dont Have To

Leave a Reply