Google sticks with dual-class structure

Shareholders reject stock structure reform measure at annual meeting. Also, execs defend China censorship policy.

Elinor Mills Former Staff Writer
Elinor Mills covers Internet security and privacy. She joined CNET News in 2005 after working as a foreign correspondent for Reuters in Portugal and writing for The Industry Standard, the IDG News Service and the Associated Press.
Elinor Mills
4 min read
As expected, Google shareholders rejected on Thursday a proposal made by a pension fund holder of stock to eliminate the company's dual-class stock ownership structure.

Google's annual shareholder meeting also featured executives fielding questions about the search behemoth's controversial censorship policy in China.

A representative from the Bricklayers & Trowel Trades International Pension Fund, a relatively small shareholder with just more than 4,700 shares of Google, said the dual-class stock structure is not healthy for the company because it puts too much control in the hands of a few executives. Economic research has shown that a dual-class stock structure can lead to "undue conservatism among managers," said union official John McIntyre.

It is "the potential inbreeding of ideas that can be engendered by a dual-class structure that really worries us," he said, before the voting results were announced. "Even the best managers and the best innovators can (benefit) from the intelligence of the market."

Google's board of directors had recommended that the proposal be rejected, arguing that it makes it harder for outside parties to take over or influence Google and allows management to more easily follow a long-term growth strategy.

Under the current structure, Class A stock has one vote per share and Class B stock, owned only by Chief Executive Eric Schmidt and co-founders Larry Page and Sergey Brin, has 10 votes per share.

In a question-and-answer session after the votes were announced, executives responded to questions about the company's censorship policy in China, its challenge to the U.S. government's subpoena for user search information and about reliability issues with Gmail. Brin also said the company has no plans to split its stock, which closed at $387, down about 4 percent on the day.

A representative from the New York City Employees Retirement System who said he was also affiliated with Amnesty International criticized Google for agreeing to censor its search results on its China search site. That action "makes Google a partner with one of the world's most repressive regimes," he said before asking: "What will Google do to win back customers who have switched" because of that move?

"Which search engine do you recommend?" Brin asked him. When the man responded that he uses Yahoo, Brin noted that Yahoo was "the one that has been censoring (in China) since the '90s" and has provided information to authorities that led to arrests of citizens.

Google took a "symbolic stand" in not censoring the search results in China since it first launched there in 1998 and found that doing so meant many people within the country couldn't access the search site, Brin said.

"The consequence was our service was significantly degraded. It wasn't available in Chinese universities at all," he said. "When it was available it was slow...to the point that people stopped using it."

Since January, when Google launched its censored local search site in China at www.google.cn, the company has found that the site gets fewer than 1 percent of the searches from China and that most still use the main search site at www.google.com, Brin said.

Asked how Google plans to compete against the local Chinese search engine, Baidu.com, Brin said that despite protectionist policies in China, Google has been able to maintain a decent market share.

Brin did not say what the market share is, however iResearch issued a report in April that showed Baidu with 56.8 percent share and Google in the second spot with 32.8 percent, while Yahoo had less than 5 percent share.

A shareholder also commended Google executives for challenging a U.S. government subpoena seeking information on search queries, saying that Google's success depends on the confidence users have that the company will protect their privacy. A judge ordered Google to provide some of the data the government wanted, basically a list of 50,000 random Web site addresses, but not the million search examples the government initially demanded.

"The trust you talk about we take extraordinarily seriously," said Google General Counsel David Drummond. "When we get requests like that from the government, we have to turn over information...but we want to make sure that it is properly balanced with our users' interest and users' privacy. The government came back and asked for lots and lots of information that we didn't think was appropriate."

Brin added: "We did agree to do some things we thought were silly and a hassle for us."

One shareholder asked why he had been getting error messages lately indicating that Gmail was not available. Google co-founder Page said it was likely that the service was being taxed because of all the new users signing up.

"Our reliability has not been as good as it is on our search," he said. "As we release services...we learn about how to operate them and make them more reliable. We're not quite there with Gmail."

Another shareholder complained that Google's share price drops after company executives make public statements, which he said were rare and tended to be negative. In one recent example, the stock dropped more than 13 percent in February after the chief financial officer mentioned slowing growth rates at an investment bank conference.

"You all seem like sunny, reasonable people. Why isn't (a positive message) translated to the media?" the shareholder asked.

"We are not responsible for the media. They don't work for us, and in our country they can say whatever they want," Schmidt said. "We think it's just better from a business perspective to tell people what's up."

Journalists were barred from attending the meeting at Google's headquarters in Mountain View, Calif., but were allowed to listen to a live Webcast.