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Why I Might Sell Google

Alyce Lomax
April 17, 2012

This article is part of our Rising Star Portfolio series.

Google's (Nasdaq: GOOG  ) been a successful component to my socially responsible Rising Stars portfolio thus far, but today the Internet giant has lost some major esteem in my eyes. Its recent decision to split its stock and issue a third class of shares is extremely unfriendly to shareholders.

Forget demeaning shareholders as second-class citizens; being demoted to a voiceless, voteless third-class citizen is even more insulting.

Psychology and split personality
As my colleague Tim Beyers pointed out this week in his exploration of how "evil" Google has become at times, Google's management has always been pretty upfront about not welcoming outside influence on, or interference with, business decisions. However, there's a pretty ironic turnabout going on in this situation.

The New York Times reported that at one point, co-founder and CEO Larry Page said of stock splits: "It's stupid. If you own 10 shares at $40 or one share at $400, it's the same thing! You just need to know how to divide." Exactly.

Stock splits amount to nothing more than, say, metaphorically cutting a pie into pieces and possibly changing some investors' perception of a stock price at first glance. In reality, splits don't add or subtract a bit of value from one's actual financial stake.

Well, so much for railing about the psychology of tricky arithmetic when it comes to the power and ego of management. Google's recent move is all about control. And it's not like Google's founders Page and Sergey Brin didn't possess plenty of voting power before this move; Page, Brin, and chairman and former CEO Eric Schmidt have 66% of the votes at Google.

Previously, Google had two classes of shares, Class A and Class B. Class A shares possessed one vote per share, and Class B shares (owned by folks like Page and Brin) came with a whopping 10 votes per share.

Triple threat
From the perspective of corporate governance, dual-class stock structures are troubling enough. However, when you reach into the realm of triple-class stock structures, things have truly gone over the top. Zynga's (Nasdaq: ZNGA  ) triple-class structure was shocking. Shockingly offensive, even: Founder Mark Pincus got a class of stock all his own, and those shares pack 70 votes each.

Google's move may not be quite that outrageous, but it's still pretty offensive. The new Class C shares, resulting