Google's governance panned
Published: 24 Aug 2004 16:10 BST
Google's stock market debut may have gone off with a bang, but its shareholder practices have landed with a thud.
The search engine giant has received poor marks for its corporate governance efforts from Institutional Shareholder Services, a well-recognised advisory service that cited practices such as Google's dual class of voting rights.
Google outperformed only 0.2 percent of the companies in the S&P 500, placing at the bottom of ISS' Corporate Governance Quotient.
That ranking gives another bruising to Google, which had an number of stumbles in the run-up to its long-awaited public offering on the Nasdaq last week. And it comes at a time when public companies are under intense scrutiny over corporate governance issues in the wake of financial scandals at companies including Enron and WorldCom.
Google representatives were not immediately available for comment.
ISS provides institutional investors, such as mutual fund and pension fund managers, with advice on how to vote on proxy matters, as well as providing reports on corporate governance issues. Because ISS can effect how a large number of stakeholders will vote on any given issue, the public companies that are the target of their recommendations or advisories tend to take note.
Among the criticisms in its latest report, ISS highlighted Google's two classes of stock and its two-tier voting rights, with class A shareholders receiving one vote per share and class B investors receiving 10 votes per share.
ISS also said that less than two-thirds of the company's directors are "independent" and that its chief executive is involved in more than one "related party" transaction.
As Google's IPO drew near, the company got into trouble with the Securities and Exchange Commission for an interview with company founders Larry Page and Sergey Brin that appeared in Playboy while Google was supposed to be in a quiet period. The SEC had already been looking at the company for failing to register a group of insider stock options.
Critics had raised eyebrows over some corporate governance issues, in particular a stock class structure that gives insiders far more power to control the company than average investors.
Despite the hiccups, the stock has performed well since its IPO. It jumped 18 percent on the first day of trading and has been on the rise again this week.
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