Google could improve its corporate governance

August 25, 2004

Google has rather weak corporate governance policies, according to a study by a stockholder service organisation.

Institutional Shareholder Services (ISS), in a report obtained on Tuesday, said Google's overall ranking on corporate governance is just 0.2 percent in comparison with Standard and Poor's 500 firms � in other words, it outranked just one of the other companies.

ISS, which rates some 7500 companies on issues of responsibility to shareholders, cited in its report, dated August 19, "lingering questions about the company's substandard governance structure".

"As investors now look past the IPO to actually owning a piece of Google, fundamental problems with Google's corporate governance structure could prove problematic as they enter the entirely different world of being a public company," ISS said.

Of particular concern was the initial public offering (IPO), which gave company founders and their associates a different class of shares, with unequal voting rights.

"The company's super-voting-rights structure gives insiders 10 votes per share compared to one vote per share for participants in the IPO," the ISS report said.

"The last-minute decision to scale back the number of existing pre-IPO holders' shares to be sold in the offering guaranteed that insiders will have 'carte blanche' authority in running the company over the near term."

ISS also noted other issues, such as the fact that fewer than two-thirds of Google's board members are "independent" by the ISS definition.

"Because Google lacks the usual checks and balances provided at public companies by shareholder votes, holders must closely scrutinize the judgment of the company's top decision makers, including (co-founders Sergey) Brin and (Larry) Page," the report said.

"Rank-and-file shareholders have no meaningful avenue for recourse � other than selling their low-vote shares, of course � if the company loses its way," ISS said.

"For now, shareholders must put all of their trust in an unproven senior management team and a board dominated by early-stage financial backers, who may have short-term interests that don't match those of other shareholders."

Source: iAfrica.com and AFP

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