Third problem: Google hates its shareholders.
Google is also notorious for its dual class system of stocks. One one level are the founders’ shares, which are worth ten votes each and cannot be purchased by outside investors. On the second level are common shares for retail investors and employees, which represent a single vote each at over $800 per share.
Last year, Google Inc (NASDAQ:GOOG) announced that it would split its stock in a nontraditional way with to preserve the power of its main executives: CEO Larry Page, co-founder Sergey Brin and chairman Eric Schmidt.
Google planned to split its typical Class A stock into two – a Class A share with voting rights and a Class C share with no voting rights, both worth half of the original stock’s price. What that means is investors will get twice as many shares at half the price, with the same voting rights as before.
For investors, nothing has changed substantially – they still have the same amount of capital invested, although in twice as many shares at half the original price. They still retain the same voting rights with Class A shares. However, for employees of Google and some new investors, they will be assigned Class C shares – with no voting rights whatsoever.
What this means is that the Google Inc (NASDAQ:GOOG) triumvirate will be able to increase the amount of non-voting shares while preserving the same amount of voting ones – thus making it possible for them to sell their shares without losing any voting power, as well as issue new shares without increasing the voting power of existing shareholders. In addition, Google shareholders will never be able to claim more than 50% of the company’s voting rights.
Consider what that means for shareholders – any project or strategy that Larry Page is keen to pursue or abandon will go unchallenged. Do you think that Google Glasses, driverless cars or wind farms aren’t good investments? Do you think that Google Inc (NASDAQ:GOOG) was wrong to leave China in 2010 and surrender its most important market to Baidu.com, Inc. (ADR) (NASDAQ:BIDU)?
Too bad – Google doesn’t really care what you, the shareholder, thinks. Not even top institutional investors will be able to challenge or sway the company’s often erratic decisions.
Bottom Line
Make no mistake, Google is a spectacular growth stock that will probably head even higher this year. However, Google is far from invincible. Motorola’s losses, a glaring vulnerability to Facebook and a rigid, anti-shareholder stance are three things I hate about Google. They might not sink the stock, but they are important enough to pay attention to, since they are the things most likely to sneak up on Google Inc (NASDAQ:GOOG) and bite shareholders when they least suspect it.
The article Three Things I Hate About Google originally appeared on Fool.com and is written by Leo Sun.
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