Google Inc.'s latest bid to preserve the control of foundersLarry Page and Sergey Brin is raising concerns amongcorporate-governance watchdogs, who say the new stock structurecuts shareholders out of the loop.

Google unveiled a plan yesterday that lets the company issue newshares without diluting the founders' voting power. The stockchange would create a new class of nonvoting shares that will bedistributed to existing shareholders in what is effectively a2-for-1 stock split.

Page and Brin, who made no secret of their intention to holdsway over the company when it went public in 2004, aim to keep thatcontrol as Google grows larger. The latest move lets the foundersissue stock to compensate workers or make acquisitions withoutloosening their grip. For investors, the result is a lack of inputon decision making, said Charles Elson, director of the Universityof Delaware's John L. Weinberg Center for Corporate Governance.

“Shareholder voting rights are pretty limited in Google,” hesaid. “And this basically perpetuates that reality.”

Together with Chairman Eric Schmidt, Google's co-founders haveabout two-thirds of the company's voting power, thanks to adual-class stock structure that was created before its initialpublic offering eight years ago. The company already had one classof stock with less voting power, Class A. The new type, Class C,will have none at all.

Google's shares were little changed in late trading after theannouncement yesterday. They had risen 2.4 percent to $651.01 atthe close in New York.

It's hard to tell why the additional step was necessary, saidTim Ghriskey, a co-founder of the Solaris Group who helps overseeabout $2 billion in assets, including Google shares.

He would rather see Google pay a cash dividend, Ghriskey said.Still, if investors aren't happy, they can always sell theirshares, he said.

“We live with it,” Ghriskey said. “It wouldn't be our firstchoice. Our first choice would be split the stock and don't createtwo classes, and start paying a dividend.”

Google put in the original dual-class structure to insulate thecompany from outside pressures while it made potentially riskyinvestments, such as the video-sharing site YouTube or the Androidmobile operating system, Page and Brin said yesterday in astatement. The latest change solidifies those protections.

'The Best Interests'

“We recognize that some people, particularly those who opposedthis structure at the start, won't support this change — and weunderstand that other companies have been very successful with moretraditional governance models,” the founders said. “But aftercareful consideration with our board of directors, we have decidedthat maintaining this founder-led approach is in the best interestsof Google, our shareholders and our users.”

The announcement was made as part of the company's first-quarterearnings report. Profit, excluding certain costs, climbed to $10.08a share in the period, the company said on its website. Analystshad projected $9.64 on average, according to data compiled byBloomberg. Excluding revenue passed on to partner sites, sales roseto $8.14 billion, matching estimates.

The desire to hold on to control has always been a driving forceat Google, said Colin Gillis, an analyst at BGC Partners LP in NewYork.

“That's been Google's story,” he said.

While the new proposal will be subject to a vote at Google'sannual meeting on June 21, the fact that Page, Brin and Schmidtcontrol the majority of voting power makes it likely to succeed.“We expect it to pass,” David Drummond, Google's chief legalofficer, said in yesterday's statement.

Under the plan, investors will receive one share of the newstock for each one they hold. So a share valued at $600 when thesplit takes effect would become two shares, each valued at$300.

Paul Hodgson, a researcher at GovernanceMetrics InternationalInc., a corporate-governance consulting firm in New York, said theapproach isn't ideal because it puts unnecessary limits onshareholders.

“That is anti-best practice as far as best governance, but sowas the dual-class structure in the first IPO,” Hodgson said.“There are plenty of companies that have a single class of shares,one vote per share, and they aren't paranoid that shareholders aregoing to somehow influence the future strategy of the company.”

Google's founders have lost voting power by selling stock inrecent years, and the new structure would help prevent them fromlosing more, said Lise Buyer, principal at Class V Group in PortolaValley, California.

“As the founders sell a little bit, as they have been doingevery quarter, their voting power relative to the shareholder baseis going down,” said Buyer, who helped advise Google on itsIPO.

The stock split won't reduce investors' power in the immediateterm, since they'll still have as many votes as before, said ClayMoran, an analyst at Benchmark Co. in Delray Beach, Florida. Still,it adds one more layer of structure.

“It's unnecessarily complex,” he said.

Bloomberg News

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