Google faces lawsuit over its stock-split plan
Weeks after the Internet giant announced its first stock split, it's hit with a lawsuit alleging the plan only reinforces its co-founders' "iron-clad grip" on the company.
Criticism of its recent stock split plan has evolved into a court case against Google. A shareholder filed a class action lawsuit in an attempt to block the plan on the grounds that it gives Google co-founders Larry Page and Sergey Brin too much power, according to Reuters.
Brockton Retirement Board brought the suit, alleging that Page and Brin "wish to retain this power, while selling off large amounts of their stockholdings, and reaping billions of dollars in proceeds." Brockton filed the complaint in Delaware, where Google is incorporated.
Google announced its first stock split -- or, if you will, "non-voting capital stock plan" -- last month. As part of the split, the company plans to issue a new class of stock that won't carry voting rights. Current Google stockholders will receive one share of this new Class C stock for each company share they already hold. But future stock grants to employees and new acquisitions will be of the non-voting variety. The overall effect will be to ensure that Google's existing shareholders -- especially its founders -- retain their current voting power.
According to Reuters, the Brockton complaint says that the plan cements Page and Brin's "iron-clad grip" on Google by maintaining their 56.3 percent voting stake.
In Page and Brin's 2012 Founders' Letter explaining the stock split plan, the co-founders wrote:
We recognize that some people, particularly those who opposed this structure at the start, won't support this change -- and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.
When CNET contacted Google for comment about the stock split lawsuit, a spokesperson said, "The Board analyzed the proposed stock split with great care over a long period and remains confident that it is in the best interests of Google and its shareholders."