"Two-class" corporate ownership structure: not just for media dinosaurs any more!

Several readers have pointed out something I am aware of and should have mentioned: The "two-class" system of share ownership that I claim is crucial to the quality of America's best newspapers (and that is at the heart of the struggle for control of the Wall Street Journal), is not unique to battered old news organizations.

It also is built into the structure of America's shiniest new corporate champion: Google,* which of course has played more than a small role in making newspapers as battered as they are.** The shares Google sells the public are "Class A" common stock, with one vote per share. Google's founders and other executives hold "Class B" stock, with 10 votes per share, which of course gives them disproportionate control over the company's policies.

In fact, the "Letter from the Founders" that Larry Page and Sergey Brin issued before the Google IPO three years ago has a fascinating passage on just this point. Full text after the jump, one significant highlight here:

The New York Times Company, The Washington Post Company and Dow Jones, the publisher of The Wall Street Journal, all have similar dual class ownership structures . Media observers have pointed out that dual class ownership has allowed these companies to concentrate on their core, long term interest in serious news coverage, despite fluctuations in quarterly results. Berkshire Hathaway has implemented a dual class structure for similar reasons. From the point of view of long term success in advancing a company's core values, we believe this structure has clearly been an advantage... [Emphasis added]

Here is the full discussion of two-class structure from the letter, which was subtitled "An Owner's Manual for Google Stockholders":

In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier. This structure, called a dual class voting structure, is described elsewhere in this prospectus. The Class A common stock we are offering has one vote per share, while the Class B common stock held by many current shareholders has 10 votes per share.

The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company's decisions and fate, as Google shares change hands. After the IPO, Sergey, Eric [Schmidt] and I will control 37.6% of the voting power of Google, and the executive management team and directors as a group will control 61.4% of the voting power. New investors will fully share in Google's long term economic future but will have little ability to influence its strategic decisions through their voting rights.

While this structure is unusual for technology companies, similar structures are common in the media business and have had a profound importance there. The New York Times Company, The Washington Post Company and Dow Jones, the publisher of The Wall Street Journal, all have similar dual class ownership structures. Media observers have pointed out that dual class ownership has allowed these companies to concentrate on their core, long term interest in serious news coverage, despite fluctuations in quarterly results. Berkshire Hathaway has implemented a dual class structure for similar reasons. From the point of view of long term success in advancing a company's core values, we believe this structure has clearly been an advantage...

Google has prospered as a private company. We believe a dual class voting structure will enable Google, as a public company, to retain many of the positive aspects of being private. We understand some investors do not favor dual class structures. Some may believe that our dual class structure will give us the ability to take actions that benefit us, but not Google's shareholders as a whole. We have considered this point of view carefully, and we and the board have not made our decision lightly. We are convinced that everyone associated with Google—including new investors—will benefit from this structure. However, you should be aware that Google and its shareholders may not realize these intended benefits.

* Disclosure: I have some good friends within Google's leadership.

** To spell out this connection: Google's efficiency in delivering advertising targeted to specific content is one significant part of the general internet-based erosion of newspapers' ability to sell advertising. Similarly, Google News and similar features are part of the internet-age assumption that news, like other forms of "content," basically should be free and on-demand, rather than paid for either on the newsstand or by subscription.