Control freaks: Google's stock split

It's good for the founders, but is it in the company's interests?

Google have announced that they will be splitting their stock. This is normally a move which – although free-market purists disagree – is intended to slightly boost the overall value of a company. The idea is that small investors may be put off by the fact that it costs well over $600 to own a single share in Google, but would buy in to a company that costs $300. It is a reasonable theory. After all, one share in pre-split Google would be a significant proportion of a hobbyist investor's portfolio; if they jump on board in significant numbers, it could provide a mild capital boost.

Except that's not really why Google split their stock. They did it because their Troika – Larry Page, Sergei Brin and Eric Schmidt – never really wanted to give up control in the first place. The split will create an entirely new class of non-voting stocks, which will mean those three will continue to own 58 per cent of the votes for the foreseeable future. Indeed, twice in the founders' letter announcing the change, Page and Brin write of the "very long term"; they have no intention to give up control any time soon.

On the other hand, they have to specify the very long term, because the scale of their control of the company is such that it is only in a long timeframe that it is coceivable that they could lose it. Even if Google doubled the number of shares owned by people other than those three, they would still hold control in the company (although Larry and Sergei would no longer hold an absolute majority on their own, but would need Eric's input).

Felix Salmon thinks he knows why they made this change:

This move, then, is basically a way for Google to try to retreat back into its pre-IPO shell as much as possible. It never really wanted to go public in the first place — it was forced into that by the 500-shareholder rule...

(The SEC has a rule which forces companies with more than 500 shareholders to register with them, revealing most of their internal accounts. Faced with this, many companies decide to go public, which has much the same restrictions but also promises a massive payout)

...but at this point, Google is far too entrenched in the corporate landscape to be able to turn back the clock. It’s too big, and too important, and has been public for too long. That’s the thing about going public: it might suck, but once you’ve done it, you’ve done it. And at that point, if you try to pull a stunt like this, you risk looking all too much like Rupert Murdoch.

Salmon also points out that moves like this were illegal in the US for much of the last century. From the 1920s until 1986, companies had to have equal voting rights. Indeed, it was seen as a pretty fundamental rule of the market. Not that we should hold Google to the standards of 1985. That would be tricky for a number of reasons.

Google are splitting their stocks to concentrate control. Don't be evil? Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.