Google founder Larry Page threatened to leave if the company didn't find a way to keep him in control, newly unsealed court docs reveal
- Larry Page, Google's cofounder, threatened to leave the company in 2011, Bloomberg reported Wednesday.
- Together with fellow cofounder Sergey Brin and top executive Eric Schmidt, Page held shares with super-voting powers that gave the threesome control over Google.
- Page was worried he'd lose that control if Brin or Schmidt sold their shares, according to recently unsealed court records viewed by Bloomberg.
- At the time he made the threat, Page was pressing Google's board of directors to create a new class of stock that would allow him to retain control even if Brin and Schmidt sold their stock.
Google's board of directors created a third class of stock in 2012 in part to placate cofounder Larry Page, who was worried about losing control of the company, Bloomberg reported Wednesday, citing recently unsealed court records.
Page fretted that fellow cofounder Sergey Brin and top executive Eric Schmidt, who along with himself held shares that collectively gave the threesome control over the company, would sell their super-powered stock, Bloomberg reported. Starting in late 2010, Google's founders and board started negotiating over a plan to create a third class of stock that would help ensure that he would retain control over Google even if they did so.In June 2011, with negotiations still ongoing, Page suggested he might resign if the company's board didn't resolve the dispute to his liking, according to the court records cited by Bloomberg.
Page "leveled a veiled threat in that 'why should I sacrifice and work so hard if I might not be in control,'" Paul Otellini, a Google director at the time, said in a 2011 email.
At the time, Google, now a part of holding company Alphabet, had two classes of shares. Class A, held by everyday investors, had one vote per share. Class B, held by Page, Brin, and Schmidt had 10 votes per share. Those super-powered shares gave the threesome 66% of the shareholder votes at Google.
But under the terms of Google's corporate structure, if any of the three top officials sold their Class B shares, their stock would be converted into Class A shares, and the threesome would lose a portion of their control. Their control could also be diluted if Google issued new Class A shares as part of an acquisition.
Other tech companies have followed Google's lead
Google, now a part of holding company Alphabet, ultimately created a third class of stock - Class C shares - that it distributed as a dividend to existing shareholders. Those shares come with no votes, meaning that Google can issue an endless number of them without affecting the voting control held by Page, Brin, and Schmidt.
The revelation about Page's threat to leave the company was found in documents filed in a shareholder lawsuit over the establishment of the Class C stock. The investor who sued complained that Google was giving its founders additional control over the company at the expense of regular shareholders without compensating investors for it. The investor was also worried that the new shares would allow the founders to sell off significant numbers of shares - and thus dramatically decrease their economic stake in Google - while still retaining control of the company.As part of a 2013 settlement of that suit, Google agreed to require Page, Brin, and Schmidt to sell their Class B shares whenever they sold Class C stock. It also agreed that any attempt to change the requirement would have to be approved by Google's entire board.
Google was one of the first tech companies to have a dual-class stock structure. But that set-up has since been copied by Facebook and Snap and has become increasingly popular among Silicon Valley startups looking to go public. Advocates have touted them as a way to allow corporate founders to focus on their organization's long-term success, rather than on the day-to-day concerns of short-term investors.
But such stock structures have drawn increasing scrutiny and criticism of late, because they can insulate corporate insiders from legitimate shareholder and societal concerns. Such worries have been highlighted at companies including Facebook, which has seen a string of scandals over the last two years, and Snap, which has struggled financially and operationally since becoming a public company.
Some institutional investors have been pressuring stock markets and indices to exclude from their ranks companies that restrict the voting rights of everyday shareholders.
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