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Greenberg: Why I'm OK With Google Investors Having No Voice

By: Herb Greenberg | 04/04/14 - 08:32 AM EDT

SAN DIEGO (TheStreet) -- I have a confession: I'm all for shareholder rights, and generally side with the corporate governance crowd on almost everything.

But when it comes to two or even the three classes of shares -- the latter being the route Google (GOOG) has just gone -- I just don't get exorcised.

Class A and B shares are a growing trend, especially in Silicon Valley. Insiders tend to have the voting shares; everybody else (you and me) don't. Consider this from Zulily's (ZU) recent IPO filing (emphasis by me):

"Zulily has two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 99% of the voting power of our outstanding capital stock immediately following the completion of this offering."

By going so far as to create Class C shares, Google's not-so-subtle main goal is to ensure that founders Sergey Brin and Larry Page retain majority control. TheStreet's Antoine Gara lays it out well here.

The downside of the A-B structure, of course, is that it can protect complacent management. I abhor management being run for the sake of protecting management. Shame on them! That's why, in general, I'm a fan of activists.

But I equally abhor the rise of overzealous activists who swoop in, seeking some kind of short-term financial engineering to get a short-term pop in the stock, because they see an easy mark. (See Why ADT Is Appalling).

Ironically, they may actually be forcing more companies to go the A-B route. After all, who wants somebody to come in, right in the middle of a strategy, and force you to use your cash on something else?

Reality: Nobody is holding a gun up to your head telling you what to invest in here. You choose to accept an A-B structure as a vote of confidence in management. Don't like the way things are going? Find another investment. I feel very strongly about that.

-- Written by Herb Greenberg in San Diego

Follow @herbgreenberg

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

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