Google’s Larry Page levelled ‘veiled threat’ over firm’s control

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Washington | Published: March 14, 2019 1:42:49 AM

Page was concerned that co-founder Sergey Brin and top executive Eric Schmidt would sell special voting stock, diluting their lock on decisions at Google.

Larry Page, googleLarry Page

Google co-founder Larry Page worried he would lose control of the company in 2011 and delivered what appeared to be a “veiled threat” to quit over the issue, according to confidential emails and other documents recently unsealed in a court case.

Page was particularly concerned that co-founder Sergey Brin and top executive Eric Schmidt would sell special voting stock, diluting their lock on decisions at the online search giant, the documents show. Page also suggested he might shun large stock-based acquisitions because those deals could also reduce his voting power — a situation a board member described as “a real concern.”

The documents were unsealed last year as part of a lawsuit by shareholders over the creation of Google’s C class shares. The filings, which include previously unreported board emails and depositions, reveal a potential strain in the bond between the Google founders. The trove also paints the most detailed portrait to date of how Page, who reclaimed the CEO helm in 2011, pushed the board to seal his outsized control over the tech giant.

This new stock, issued to investors as a special dividend in 2014, came with no votes. Google was open about some of the reasons for the new shares. It told investors in a 2012 regulatory filing that founder control was important and the class C stock could be used for acquisitions and employee equity grants without diluting that control. But the unsealed documents suggest another driver of the original proposal: Page needed a way to keep a grip on the company even if Brin sold his voting stock.

“Why should I sacrifice and work so hard if I might not be in control?’’ Page told Google director Paul Otellini, according to a June 2011 email Otellini wrote to other board members, adding that he considered the statement a “veiled threat.’’

“He is worried about Sergei’s shares ending up in the market. He sees no ability to buy him out,’’ wrote Otellini, who was also CEO of Intel at the time.

Google’s 2004 IPO created the model for founder control of public technology companies. It sold class A shares with one vote, while Page, Brin and Schmidt kept class B stock with 10 votes per share. Since then, companies including Facebook and Snap have used a similar concoction of super-voting stock to raise billions of dollars from investors while keeping decision-making in the hands of the original leaders.
Another crop of tech IPOs is coming this year and the approach is being used again.

Tech companies argue these structures help them focus on long-term strategy, rather than obsessing over quarterly results to please Wall Street. But the approach can also leave founders less accountable if things go wrong. Last year, Google came under fire for giving executive Andy Rubin a $90 million exit package after an internal investigation determined he had an inappropriate relationship with a subordinate. Page allegedly granted a big stock award to Rubin. Directors signed off later, according to a recent lawsuit, but they had little say because Page, Brin and Schmidt still had voting control thanks to the class C stock.

“Our voting structure is a huge benefit as it gives us greater ability to focus on long-term interests,” a spokeswoman for Google parent Alphabet said. “Throughout this process, the board operated with full autonomy and diligence in the best interests of all shareholders, as it has always done and continues to do.” She also said the recent claim that Page bypassed the board’s compensation committee when deciding Rubin’s award was false.

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