The Council of Institutional Investors, an association representing funds and managers with over $3 trillion in assets under management, is "no fan of dual class shares or entrenched founders. We believe in one share one vote as a fundamental right of shareholders," says Ann Yerger, the council's executive director.
The baseline for good governance worldwide is the OECD governance principles, which were adopted in 2004 by the U.S.and 29 other countries. The actions at Google, Facebook and Carlyle all fly in the face of sections two and three of those principles, which describe the rights of shareholders. Some may argue, "So what -- what is a lapse in principles among friends?"
But this issue goes beyond dollars and cents. The FCC gave Google a $25,000 wrist-slap for an inadvertent drive-by theft of personal information. A Google spokesperson said in an email, "It was a mistake … but we believe we did nothing illegal." The FTC may be readying an anti-trust case, but can we really trust Google's founders with this kind of power, especially given the apparent weak will of regulators to protect individuals from Google's and other tech firms' privacy breaches?
Who could check Google's authority? Yerger says there are four ways to halt public market investment in the Googles, Facebooks, and Carlyles of the world. First off, the exchanges could refuse to list them. Or the indexes could refuse to include them. The investment banks could refuse to underwrite them. And those who invest other people's money -- so-called fiduciaries -- could refuse to invest in them.
Unless investment banks refuse to underwrite these kinds of shares, as they should, companies will continue to use them, Whitehead says.
Both Monks and Whitehead agree that fiduciaries, who are obligated to protect the invested dollars entrusted to them, should not invest in these kinds of stocks due to the risks involved. But firms like Blackrock and Fidelity certainly are investing large amounts of other people's money in Google, according to the tech giant's preliminary proxy filing. And for now, it appears that other fiduciaries are not engaging with Google on the voting rights issue either.
One share, one vote is a "psychologically important part of the free enterprise system," which helps to encourage market participation, Whitehead says.
The erosion of that trust weakens the market for all stocks.
Google founders see themselves as pioneers in stripping accountability from the capital markets system. But, to quote the company's own motto, you can make money without doing evil. If Google's founders intend to do good, accountability should be no obstacle.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm.
