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Google enshrines control at a cost

Google is enshrining control at a cost. Founders Larry Page and Sergey Brin already hold sway on over half the votes even as non-voting stock is added to the mix. The small discount attached to new Class C shares goes to show investors want a say even when it doesn't count.

The company split its publicly traded stock on Thursday, handing out one non-voting Class C share for every Class A share that is allowed one vote apiece. That leaves the $380-billion web search giant with three share classes, including the Class B ones that come with 10 votes each. All future equity granted to employees or used in acquisitions should be in non-voting shares. This effectively ensures Page and Brin stay in charge indefinitely. It's of course easy to argue the

C and A shares are a distinction without a difference. One includes a vote that doesn't matter, the other no vote whatsoever.

Yet, the powerless C shares are trading at a tiny discount of about $1.50 each to their A cousins. That's notable for several reasons. The non-voting shares should be easier to buy and sell because there will eventually be more of them. In addition, all the Standard & Poor's indices will eventually use the C shares. After it was sued by investors, Google agreed to provide a little insurance and will pay C holders to close part or all of the gap that opens with the A shares after a year.

Investors have shown a willingness to pay for a say. Discovery Communications, for example, has a similar three-way setup, and the non-voting shares trade at a seven per cent discount to super-voting ones. Comcast and News Corp shares reflect a similar preference. Multiple classes of stock make companies harder to analyse, introduce disputes and force investors to discount the odds controlling founders will overstay their welcome or treat their companies as personal fiefdoms. When Telus and Magna International simplified their structures, their stock value increased.

Brin and Page have paid for the privilege of anchoring themselves, at the expense of other owners. By eliminating multi-share schemes, other companies have added about five per cent to their market capitalisations. That would equate to nearly $20 billion for Google, indicating a rather steep price for poor governance.