All Aboard: Google

The only time we hear about a board of directors is when its members are up to no good. Proxy battles, compensation scandals, and takeover proposals bring these stewards of corporate governance into the spotlight, but when they're simply doing their jobs, nobody pays any attention. So this Fool is here to highlight a few boards of directors, whether good or bad, to give you a more detailed picture of their companies. No need for scandals.

This week, we're peeking behind the curtain at the Googleplex. Who runs the show at Google (Nasdaq: GOOG  ) , and how are they organized?

Meet the board
According to the current bylaws, as amended in Aug. 2004, the Google board must be at least five members strong, with no upper limit. Two-thirds of the directors have to be independent by the standards set in SEC, Nasdaq, and Sarbanes-Oxley requirements. Each position is subject to an annual shareholder vote for the next one-year term, and there is no term limit.

There are currently seven external directors and three internal ones, for a grand total of 10 board members. The diversity is decent. Members come from backgrounds in entertainment, technology, big pharma, academia, and venture capital operations. Two of the directors are women, including the chair of the ever-important audit committee. Let's meet a few of the directors up close.

Two of the internal directors are co-founders Sergei Brin and Larry Page. They started Google out of a garage near Stanford and now run the day-to-day business as President of Technology and Products, respectively. They have no other past or present connections to any major public companies, as both jumped with both feet into the Google story right out of college.

The third internal director is CEO and chairman Eric Schmidt. Although he was hired to bring some seriousness and industrial know-how to the young company, Schmidt is hardly a boring suit. His background includes stints at exciting research hotbeds like Xerox PARC and Bell Labs. Google snagged him away from the CEO post at Novell.

His dance card is nearly as full as it can be. The bylaws limit him to three public board posts, including Google itself, and he is a director of Apple (Nasdaq: AAPL  ) with all the mouth-watering synergies that relationship brings. Inside the Google board, he also chairs the real estate, acquisition, and executive committees.

The first two are what they sound like -- task forces that evaluate and recommend strategies for real estate use and possible corporate mergers and buyouts. For a company with nearly $9 billion in cash equivalents even after the $3.1 billion DoubleClick transaction goes through, these two sub-boards shoulder a very large responsibility for evolving the company, and their moves get plenty of attention. The executive committee gives Brin, Page, and Schmidt the power to meet and act on behalf of the larger board in certain matters.

If that wasn't enough, Schmidt also serves on the board of Princeton University. Perhaps renowned geneticist and Princeton president Shirley Tilghman enjoys his company, because she sits on the Google board in return.

And while we're on the academic tour, let me introduce Stanford president John Hennessy. Not only did Google spend its hatchling days on his campus, but he is an avid technologist who co-founded and still chairs wireless communications expert Atheros (Nasdaq: ATHR  ) . He also has a spot on the board of Cisco Systems (Nasdaq: CSCO  ) .

The two presidents -- Tilghman and Hennessy -- form the nominating and corporate governance committee, which looks for qualified directorial candidates and prospective executive officers so that shareholders can vote on the board nominees, who in turn set the executive roster.

That's also the committee that makes sure Google acts like a grown-up business and follows the rules. Remember that list of the best corporate citizens in America, where AMD placed second? Google is No. 29 there, in some very august company. Not bad at all.

Ann Mather heads up the audit committee, which ensures that the company's accounting and financial reporting stays current and accurate. She spent decades in the entertainment industry at companies like Paramount Pictures and Disney (NYSE: DIS  ) , and was the CFO of Pixar for four years.

Finally, I'm bringing out some big guns. Intel (Nasdaq: INTC  ) CEO Paul Otellini and Genentech (NYSE: DNA  ) CEO Arthur Levinson make up Google's leadership development and compensation committee. In short, the two big-name CEOs come up with a draft for salaries and perks for the top brass, which then has to pass a full board vote. As an aside, Levinson sits with Schmidt on the Apple board, too.

Perks and power
So, what does the current compensation plan look like?

Google doesn't pay its directors a cash salary these days. All board members get expenses reimbursed for attending meetings and the like, and the external directors do receive stock and/or options awards. Though every director has a beneficial interest in Google stock, some of them own nothing but stock options paid out in return for their services. The bylaws don't require them to maintain any ownership in the company.

The amount of share-based compensation varies from director to director. The board grants shares and options to new directors when they come aboard, and those awards then vest little by little over the next five years. There is no set structure for which a committee chair gets extra percentages or anything of the sort. This structure means that longtime board members end up working for free -- three external directors got nothing for their service in 2006.

The internal directors are also executives and get no compensation for board duties.

Like AMD -- and really a majority of American public companies -- Google is incorporated in Delaware, although the corporate headquarters are in California. So the two companies follow the same corporate laws, and board or committee meetings can take place anywhere. Phone conferences are fine.

While the board is supposed to steer Google's general business, and many of its members surely do have enough insight into the company to make meaningful contributions, perhaps its heaviest hammer is the power to hire or fire any of the top executives with a simple majority vote. That's why takeovers often target board seats -- with enough boardroom votes, you can remake the company in your image.

Final Foolish thoughts
If you're interested in learning more about the Google board, corporate governance guidelines, or other details often overlooked, the company's investor relations website is about as clear and easily navigated as you would expect from an expert in Internet technology and practices. I had trouble finding AMD's bylaws, for example, but Google makes them an easy find.

How about that board? It's obvious that the insiders carry a lot of weight here. In an imagined board meeting that just meets the minimal quorum requirement, there could be three insiders in a six-person meeting.

On the other hand, I don't see a problem with letting Page and Brin effectively set the corporate vision here. It's their baby to begin with, and quite frankly, I don't know that Google would be the same without them. I've complained about Apple's dependence on Steve Jobs in the past. In this case, we have two head honchos, so losing one would be a lesser disaster here than in Cupertino.

It's another high-powered board, with serious academic firepower and more engineering degrees than MBAs. I personally think that's a fine way to run a technology giant, and I have a great deal of confidence in these people as they take Google into the next phase of its corporate history. From search engine start-up to advertising giant to -- what's next? We'll find out in due time.

Fool on:

Atheros is a Motley Fool Hidden Gems recommendation. Walt Disney is a Motley Fool Stock Advisor pick. Intel and Microsoft share a bunk bed on the Motley Fool Inside Value campus. Free 30-day trials for everyone!

Fool contributor Anders Bylund is a Disney, AMD, and Google shareholder, but holds no other position in any of the companies discussed here. It's a mouth-watering bunch, though. You can check out Anders' holdings if you like, and Foolish disclosure will do no evil.


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