Google Inc (GOOG): Is This a Sham?

Here’s another reason I’m concerned. Proxy voting results from 2012 show that average outside shareholders at Google appear to be overwhelmingly against the dual- and tri-class voting structures.

Introduction of tri-class voting structure
Consider, for example the voting results on Google’s 2012 proposal to introduce Class C shares that lack voting rights:

As the table shows, even though the measure passed, more than 85% of votes cast by outside shareholders were against the introduction of Class C non-voting stock. If Google’s management had consistently acted in the long-term best interests of shareholders, and shareholders trusted them to represent their best interests in the future, I don’t believe the results would have been so lopsided.

Shareholder proposal pushing for equal voting rights
Consider now the voting results on a 2012 shareholder proposal that pushed for equal shareholder voting (similar to the proposal on Google’s 2013 proxy). 147,240,478 votes were cast for the proposal, and 686,884,401 votes were cast against it.

Given that B shares are all owned by insiders, and given that they all voted in favor of the tri-class voting structure that gives management more power over proxy elections, it’s extremely likely that all 646,819,460 B share votes were cast against this proposal that would have given management less power over proxy elections.

If this is indeed the case, then more than 78% of votes cast by average outside shareholders supported equal voting rights. To me, this suggests that many shareholders have limited confidence that Google’s leaders are representing their best interests.

The Foolish bottom line
Because Google insiders hold majority control of the votes, the shareholder proposal for equal voting rights essentially has no chance of passing. I think management’s dismissal of the overwhelming support of this push shown by outside shareholders in 2012 suggests that the company is not interested in being accountable to shareholders.

I believe that, except in very rare cases, dual voting structures are bad for shareholders, and that they should pay extra careful attention to the trustworthiness of company leadership before investing in companies that limit their say.

The article Google’s Sham Shareholder Democracy originally appeared on Fool.com and is written by M. Joy, Hayes.