Today the shareholders of Alphabet GOOG, Google's parent company, will meet for its annual general meeting, where yet again, shareholders will put forward proxy resolutions to bring up for a vote. This year, there are 10 shareholder proposals up for vote, ranging from a push for equal shareholder votes to requests for reports on sustainability metrics, to gender and racial pay equity, and human rights-related risks.
Activist shareholders and investors have been pushing for change at Alphabet particularly around human rights, with three related proxy voting resolutions.
Won't Even Talk for Trillions In November 2019, over 80 institutional investors with nearly $10 trillion in assets under management wrote a private letter to the board of Alphabet, requesting a dialogue on issues such as the right to privacy, political participation, freedom of expression, health, and nondiscrimination. The request was denied.
In response, a group filed a proxy voting resolution to compel Alphabet to act, by establishing a Human Rights Risk Oversight Committee. The co-filers include UK-based Hermes Investment Management; U.S.-based Loring, Wolcott & Coolidge; Netherlands-based Robeco; and Canadian NEI Investments. It also has the support of ISS/Glass Lewis, who recommends all Alphabet shareholders to vote in favor.
The resolution asks that the committee “provide an ongoing review of corporate policies and practices, above and beyond legal and regulatory matters, to assess how Alphabet manages the current and potential impacts of the Company's products and services on human rights, oversee the extent to which the Company is meeting international human rights responsibilities, and offer guidance on strategic decisions.”
The proposal includes examples of the risks, including the “Digital surveillance…raising significant risks to privacy, which are heightened by the Company's recent moves into health, location, and financial data, and exacerbating bias, reinforcing discrimination, or facilitating disinformation, harassment, hate speech, incitements to violence through algorithms that show user-targeted content.”
Alphabet responded by saying it has existing frameworks in place to address all these risks, and so, “Establishing a separate committee to consider risks already considered by the Board of Directors and its existing committees would result in a duplication of efforts with no incremental benefit to stockholders or any stakeholders.”
Shareholders have also asked for the nomination of a human rights and/or civil rights expert to the board, saying that the company, which controls an estimated 90% of the global search market “requires expert, board-level oversight of civil and human rights issues to assess risk and develop a strategy to avoid causing or contributing to widespread violations of human or civil rights, such as supporting hate campaigns, privacy violations, or violence.”
Alphabet rejects this assertion, saying that, “There is a myriad of skills that make an ideal board candidate, including factors such as civil and/or human rights experience. Our current process allows us to consider all of these factors holistically and as a result, we do not believe it would be in the best interests of the Company or its stockholders to adopt this proposal.”
The Board of Directors of Alphabet recommends an “Against” vote for this, and all other shareholder proposals in 2020, as it has for all 25 shareholder proposals that have come up between 2017 and 2019. None of the proposals has received majority support so far, with the maximum support being 30% for two proposals in 2019.
There’s a reason for that.
Not All Shareholders Are Equal One proposal has recurred in every annual general meeting since 2017: Equal Shareholder Voting. The proposal is #5 on the ballot for 2020 as well, and it asks that the board adopt a recapitalization plan for all outstanding stock to have one vote per share.
At present, Alphabet has a multi-class voting structure, where each share of Class A common stock has one vote and each share of Class B common stock has 10 votes. Because of this, the founders of Alphabet, Larry Page and Sergey Brin, control a majority of the company's voting power, though they own less than 13% of the stock, and have stepped down from running the company.
As the 2020 proposal says, “This raises concerns that the interests of public shareholders may be subordinated to those of our co-founders. Due to this voting structure, our company takes public shareholder money but refuses shareholders an equal voice in our company's management. For example, it was primarily the weight of the insiders' 10 votes per share that permitted the creation of a non-voting class of stock (class C) despite the fact that the majority of [shareholders] voted to oppose the maneuver.”
Interestingly, in the past three years, each year, this proposal has received the highest support of any of the proposals for that year. In 2017 and 2018, the Equal Shareholder Voting proposal received 29% support, while in 2019, it received 30% of the vote.
So why bother?
The Thought That Counts With Alphabet's current voting and ownership structure, it seems unlikely that any resolution that the board recommends an "Against" vote will ever win majority support. So it is an obvious question perhaps--if the vote is doomed to failure, why bother filing at all?
Well, because sometimes, you don’t need to win a majority share of a vote to “win.”
At the end of the day, environmental, social, and governance, or ESG, investing and engagement is about negotiation and dialogue, and with each vote, the management teams get an insight into shareholder sentiment. Activist shareholders believe that if enough of the minority shareholders vote in favor of a resolution, it is enough for management and the board to take notice, and perhaps effect change. The change may not come this year, or even next, but eventually, if that change comes, it will be in some part because of these votes that seemed “doomed to fail.”
And if it doesn’t, and Alphabet continues to ignore minority shareholders, it will raise a red flag around governance, which could prove unwise, even for a monopoly like Google.