Google Founders Exert Control Via Stock Plan as Profit Soars 61%

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Matthew Staver / Bloomberg / Getty Images

Google CEO Larry Page.

In a maneuver designed to cement their control, Google’s founders announced an unusual stock plan that will maintain their grip on the search giant well into the future. Wall Street greeted the proposal — company shares rose 2.4% in after-hours trading — but the plan could spook shareholder-rights advocates.

During a conference call touting the company’s quarterly results — profits increased by 61% — CEO Larry Page said that each existing shareholder will receive one new share, effectively splitting the stock price, which is currently hovering around $650. The company soared after going public at $85 in 2004. Some investors have asked Google for a stock-split to make it easier to for smaller investors to buy shares of the company.

Here’s the catch: the new stock won’t have voting rights. That means co-founders Page and Sergey Brin, along with former CEO Eric Schmidt, will continue to control 66% of the company. They’ll have consolidated power.

(More: Grading Google’s CEO Larry Page: A First Year Report Card)

Google says the move is designed to prevent dilution of the founders’ stock through future employee option grants or stock-based acquisitions. (Page went out of his way to say that no big deals are on the horizon. Google still has to to get its $12.5 billion purchase of Mototrola through regulators.). The company’s new plan is expected to be approved at the annual meeting in June because — wait for it — Page, Schmidt and Brin control two-thirds of the company’s voting rights.

The message to shareholder is: Trust us, we know what’s best.

But the real goal may be to signal to the market that Google’s founders remain deeply invested — and firmly at the tiller — at a time of flux in the technology space. With old rivals like Yahoo floundering, and new rivals like Facebook emerging, Page is trying to build on his generally well-received first year returning as CEO (after a brief stint a decade ago). Over the last year, he’s streamlined management ranks, closed non-essential product lines, and worked to increase Google’s competitive metabolism.

“Google is a large company now, and we’ll achieve more and do it faster if we approach life with the passion and the soul of a start-up,” Page said on the call.

Page and Brin have always argued for a long-term vision that avoids quarter-by-quarter pressures driven by Wall Street analysts. The stock plan appears designed, at least in part, to send a message that he isn’t going anywhere.

The move may also represent something of an alignment with the ownership structure proposed by Facebook, which is preparing to go public next month. Facebook founder Mark Zuckerberg controls 57% of the social network’s voting rights.

Page acknowledged on the earnings conference call that stronger founder ownership provisions are increasingly en vogue for tech companies — but Google, like Facebook, could draw protests from governance and shareholder-rights groups, who are wary of such attempts to solidify management control.

Google’s founders may also be taking advantage of continuing strong financial performance to minimize grumbling from shareholders. The company earned $2.9 billion in profit in the first quarter, up from $1.8 billion, one year ago — strong performance by any measure. Overall revenue increased to $10.65 billion, up 24% from $8.58 billion.

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