Alphabet Inc.'s (GOOGL - Get Report) appointment of Sundar Pichai, the chief executive officer of Google, to its board of directors means five executives will have a seat at the table, which is not standard at a public company, according to a corporate governance expert.
"The board no longer operates as an oversight vehicle that investors imagine," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
"Directors are there to oversee management," Elson said. He said that having this number of executive directors "confuses the role because you can't monitor yourself."
Pichai will serve along side four other executive directors, co-founders Larry Page and Sergey Brin, Chairman Eric Schmidt and Google Senior Vice President Diane Greene, on the 13-member board. Pichai joined the Mountain View, Calif.-based Alphabet, formerly known as Google Inc., in 2004 as vice president of product management, according to BoardEx, a relationship mapping service of TheStreet Inc. In April 2011, Pichai was named senior vice president of products, and he assumed the role of CEO at Google in 2015 when the company reorganized as Alphabet, which has a current market capitalization of $664 billion.
"Sundar has been doing a great job as Google's CEO, driving strong growth, partnerships, and tremendous product innovation," Alphabet CEO Larry Page said in a statement. "I really enjoy working with him and I'm excited that he is joining the Alphabet board."
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Still, it is typical for most public companies to have just one executive director on the board, usually the CEO. Alphabet's board functions in a different way because of its dual stock structure, Elson said.
"The board is controlled by management through the dual-class structure," said Elson.
Alphabet established Class B stock to preserve the control of the founders and gives them ten times the voting power compared to Class A shares. The company's Class C stock, (GOOG - Get Report) , has no voting rights and is normally held by employees and Class A stockholders.
"The typical retort from proponents of dual-class structures is that depriving most investors of equal voting rights allows managers the leeway to make forward-thinking decisions that cause short-term pain for overall long-term gain," Blair Nicholas and Brandon March of the law firm Bernstein, Litowitz Berger & Grossmann LLP wrote in a May post for the Harvard Law School Forum on Corporate Governance and Financial Regulation. "This assertion, however, ignores that many investors -- and in particular public pension funds and other long-term institutional investors -- are themselves focused on long-term gains."
The Deal reached out to influential proxy advisory firms Glass Lewis & Co. LLC and Institutional Shareholder Services for comment on the addition of Pichai to the board. Glass Lewis did not respond before the time of publication; ISS declined to comment.
Alphabet also did not immediately respond to a request for comment.
Shares of Alphabet were lower by 0.5% at 11 a.m. EDT on Wednesday. The stock was down by more than 2.5% on Tuesday, as analysts and investors focused on Google's rising traffic acquisition costs despite beating Wall Street's expectations on nearly every metric.
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