At Alphabet, Inc.’s most recent annual meeting on June 7, 2017, class A shareholders overwhelmingly supported a shareholder proposal asking company management to recapitalize the share structure so that each share has one vote. According to the proponents of the proposal, assuming that all outstanding class B shares were similarly voted, then up to 99.8% of class A shareholders supported the proposal. Of class B insider shares, if only executive officers and directors of the company are counted, then an estimated 88.7% of class A shareholders still supported this proposal.
We hope this will be a wakeup call for Alphabet management. The fact that nearly 99% of ordinary class A shareholders supported this proposal is a strong message to management that Mr. Brin and Mr. Page may be the founders, but shareholders who have put the greatest investment at risk want an equal vote in company decisions,
commented Julie Goodridge, CEO of Boston-based socially responsible investment firm NorthStar Asset Management, Inc., one of the lead filers of the proposal at Alphabet.
This shareholder proposal, brought by NorthStar’s pension fund, corporate governance activist and author James McRitchie, and activist investor John Chevedden as co-lead filers, along with co-filer Boston Common Asset Management was first filed in 2012 by Mr. Chevedden, and has been re-filed annually due to high shareholder support. This year, the proposal received an overall “for” vote of 28.9% when both voting classes (A and B) are counted together, which is a positive increase from the 2016 vote which received 27.7% in favor. However, the estimated “outsider” vote in favor jumped from 86% in 2016 to the nearly-99% vote this year. Remarked Chevedden,
This proposal is a great example of the value of the shareholder proposal process. As a small but active shareholder, the proposal I filed 5 years ago as an individual shareholder has now grown to give class A outside shareholders a communal voice that they couldn’t otherwise have.
Despite the high vote by class A shareholders, the company is not obligated to make a change in the share structure because Alphabet’s insiders Page and Brin represent over 51% of the vote while only owning about 11% of the shares cumulatively. Alphabet class A shareholders only receive one vote per share owned, while class B holders (typically insiders) outweigh “outsiders” with 10 times the voting rights.
Companies like to report that they have robust shareholder engagement programs, especially with their top holders, but given that we’re only a few percentage points shy of saying that all class A shareholders agree on the need for an equal vote is really a testament to overall shareholder dissatisfaction,
said Lauren Compere, Director of Shareowner Engagement at Boston Common Asset Management. Stated McRitchie,
It’s important to note that some of the proposals the company put forward wouldn’t have been approved if all shareholders had equal voting power. Our calculations show that 75% of class A shareholders voted against the executive compensation package, and 80% disapproved of the amendment to the stock plan. This is true last year too – we estimate that 87% of class A shareholders voted against the stock plan in 2016. But management hasn’t responded to this clear illustration of discontent.
Julie Goodridge characterized the situation more bluntly,
Ignoring outsider shareholder votes has all of the earmarking of a major disaster. It works when company profits are up, but will hurt its ability to recover from a stumble in the long run.
Said McRitchie in closing,
Want to get creative? Personally, I am not actually opposed to Alphabet having three classes of shareholders. Move all current shareholders into the same class with one vote per share and reuse the two additional classes, with each electing only a single director. One class could be for Alphabet employees, who would each get one non-transferrable perferred share. Another class could be for Alphabet power users who pay a small annual fee for some benefit, like seeing no ads. They would also get non-transferrable preferred user class share.
Instead of using multi-class shares to create a democratic-free zone, Alphabet could use a multi-class structure to be more inclusive, like a cooperative, giving greater voice to employees and users. I would like to see Alphabet become a beacon of democracy, instead of a benevolent dictatorship that could turn us all into something like cyber serfs on a whim. See A More Cooperative Based Twitter and Capitalists Arise!: Serve Stakeholders.
Since 1995, James McRitchie has published Corporate Governance (CorpGov.net), an online resource for news, commentary and transformation. He is long-time advocate of more democratic and sustainable corporations.
Boston Common Asset Management is an experienced investment manager that specializes in sustainable and responsible global equity strategies and manages over $2 billion on behalf of institutional and individual investors.
NorthStar Asset Management, Inc. is a wealth management company based in Boston with a focus on socially responsible investing. At NorthStar, creative shareholder engagement is a positive force for change.