Of the five huge companies known as “cloud czars,” the one that has done worst for shareholders in 2019 is Alphabet (NASDAQ:GOOGL). These are the artists formerly known as Google. GOOGL stock’s first-half advance of 4.1% not only trails Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT), but is less than a quarter of the gain in the average S&P 500 index stock, which is up 16.4%.
Alphabet workers and investors came to their annual meeting to demand accountability, but the owners didn’t hear them. Co-founders Larry Page, still listed as the company’s CEO, and Sergey Brin, listed as president, were no-shows. Together, they control the voting shares under Google’s dual-share structure.
If Silicon Valley is all about the “cult of the founder,” and the founders don’t care about the company, what sound does that make?
Google Becoming Viacom?
Dual-share structures are said to exist so entrepreneurs can keep providing corporate vision while attracting capital. Page and Brin have 83% of the Class B GOOG shares, each with the voting power of 10 GOOGL shares. This lets them stop any move toward reform.
This was fine when Larry and Sergey were entrepreneurs whose vision was driving the company. But both are now, effectively, retired, as chief financial officer Ruth Porat runs the holding company … and Google CEO Sundar Pichai controls profitability. But they’re employees, not owners.
Alphabet is in a similar position to Viacom (NASDAQ:VIAB) or CBS (NYSE:CBS), both controlled by National Amusement and Sumner Redstone. Redstone is 96, but there is a trust document describing what happens to those companies after his death.
If a jet ski ran over Larry and Sergei tomorrow on a Caribbean island, what would happen to Google? They each have two minor children. Would the kids run the company? The New York Times (NYSE:NYT) is on its fifth or sixth generation of Adolph Ochs’ descendants controlling its fate. Is feudalism coming to the tech business?
Trouble in Alphabet City
As the annual meeting protests showed, Alphabet has some serious problems that demand the attention of ownership. Talent is leaving and isn’t being replaced. Google Home and other products are gathering immense stores of data on which the policy is ambiguous. The company’s algorithms are said to be politically biased. The industries its ad network is crushing, like this industry, would like a word.
Google CEO Pichai wrote this year’s “Founder’s Letter,” which Page and Brin are supposed to do, defining the company’s policy.
In response to growing criticism from governments, the media, employees and the public, it says Google wants to be “more helpful.” It tells journalists the company is throwing $300 million at them to help maintain a multi-billion-dollar industry. It calls removing hate speech a “hard computer science problem and a hard societal problem” without promising a solution.
It’s the kind of milquetoast letter that could have been written by one of Google’s AI bots.
Bottom Line on GOOGL Stock
Alphabet’s problems illustrate the danger of a dual-share structure for GOOGL stock holders.
The structures are meant to maintain control of a corporate vision in the hands of a founder. In practice they’re leaving the vision of an increasing number of companies empty.
Google has a lot more corporate momentum than Viacom or CBS. Google is working on quantum chips whose power increases exponentially faster than what is described by Moore’s Law. Google controls what the world can learn about itself and, through its meta-data, increasingly decides what it can’t. Google’s AI is deciding how the world of the future will be organized.
But corporate democracy doesn’t exist at Google, and no one seems to care. It’s a message that’s starting to get through to the markets and Alphabet stock holders.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and AAPL.