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Progressive Wealth
Management Since 1990
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Shareholder Rebuttal to Alphabet, Inc.
Opposition Statement
Regarding Equal Voting Rights
240.14a-103 Notice of Exempt Solicitation
U.S. Securities and Exchange Commission,
Washington DC 20549
NAME OF REGISTRANT: Alphabet, Inc.
NAME OF PERSON RELYING ON EXEMPTION: NorthStar Asset Management,
Inc.
ADDRESS OF PERSON RELYING ON EXEMPTION: 2 Harris Avenue, Boston
MA 02130
Written materials are submitted pursuant to
Rule 14a-6(g)(1) promulgated under the Securities Exchange Act of 1934.*
*Submission is not required of this filer under
the terms of the Rule, but is made voluntarily in the interest of public disclosure and consideration of these important issues.
Alphabet shareowners are encouraged to vote
FOR
resolution
#4:
RESOLVED:
Shareholders request that
our Board take all practicable steps in its control to initiate and adopt a recapitalization plan for all outstanding stock to
have one vote per share. We recommend that this be done through a phase-out process in which the board would, at the earliest practicable
time, establish fair and appropriate mechanisms through which disproportionate rights of Class B shareholders could be eliminated.
This is not intended to unnecessarily limit our Board's judgment in crafting the requested change in accordance with applicable
laws and existing contracts.
Overview
Class A shareholders in Alphabet have 1 vote per share, while
“super-voting shares” of insider shareholders (class B) get 10 votes per share, which the Proponent believes makes
it nearly impossible for ordinary shareholders to provide meaningful input on matters put to a vote of shareholders. According
to the Proponent’s calculations, approximately
88% of class A (outsider) shares voted in favor of last year’s proposal
to give each share one vote
, yet the Company appears to be making no progress on a recapitalization plan to put in place equal
voting rights. The Proponent believes that shareholders who have put the most capital at risk (outsider shareholders) have no say
in the issues affecting the Company because class B insiders with 10 times the voting rights of class A have unilateral control
of the voting result.
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; the Proponent is not able to vote your proxies, nor does
this communication contemplate such an event. The proponent urges shareholders to vote YES on item number 4 following the instruction
provided on the management’s proxy mailing.
PO Box 301840,
Boston MA 02130
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617-522-2635
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www.northstarasset.com
Where creative shareholder
engagement is a positive force for change.
TM
Scandals at peer firms illustrate the risk of our company’s
voting structure.
Facebook has a voting structure similar to our company, and
the Proponent believes that the public outcry and negative press related to Facebook’s mismanagement of user data in 2017-2019
are warnings to other technology firms which collect user data. According to one news report from last year, “Facebook has
lost $80 billion in market value since its data scandal” (
CNN Money
; 3/27/18). Given that the Proponent believes that
Alphabet shareholders have little to no recourse concerning Management decisions, just like at Facebook, it is the Proponent’s
opinion that a recapitalization of shares to allow one vote per share is the best way to protect shareholder value long term.
Research has shown that our Company’s voting structure
is bad for business.
A comprehensive study,
Incentives vs. Control: An Analysis
of U.S. Dual-Class Companies
, concluded that “
the more control that the insiders have, the more they can pursue strategies
that are at the expense of outside shareholders
”
1
(emphasis added). The authors found that ceding voting
control to insiders – that is, managers unchecked by shareholder input – leads to poor performance over the long-term.
Based upon this research, the Proponent feels that shareholder value is best promoted when insider voting control of the firm is
separated from insider economic ownership. Insider share ownership, including stock ownership by management, has its own rewards
when stock prices rise and does not need disproportionate voting control to effectively reward insiders.
A study sponsored by the Investor Responsibility Research Center
Institute (IRRCi) has shown that on average and over time, companies with multiclass capital structures
underperform
those with a one-share, one-vote standard in which owners’ economic risk is commensurate with voting power. This IRRCi study
also found that over the long term, controlled companies with a one-share, one-vote structure tend to outperform all others.
2
Alphabet claims that “Google has been managed with a focus
on the long term” and that “we are creating a corporate structure that is designed for stability over long time horizons.
By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach.”
The Proponent is very concerned that over the long term the use of insider control at Alphabet will be used to insulate management
from addressing shareholder concerns and in interests.
Despite the Company’s assertion, the Proponent believes
that creation of non-voting stock in 2012 illustrates the problem.
The Proponent believes that claims by the Company that the “tri-class
structure, with a new class of non-voting capital stock (Class C capital stock), was approved by votes representing
a majority of our outstanding common stock at the 2012 Annual Meeting of Stockholders,” are misleading because insiders already
controlled more than half of the votes due to the (then) dual-class voting structure of the firm.
Despite the fact that shareholders
own
the majority of the firm, any resolution that insiders vote against will fail, regardless of ownership vote.
In
the opinion of the Proponent, without a tally of one-vote-per-share, claiming that stockholders rejected a proposal means little
more than the fact that the founders and other insiders voted against it.
1
“The
Effects of Dual-class Ownership on Ordinary Shareholders.” Knowledge@Wharton. 30 June 2004. <http://knowledge.wharton.upenn.edu/article/the-effects-of-dual-class-ownership-on-ordinary-shareholders/>
2
http://irrcinstitute.org/pdf/FINAL-Controlled-Company-ISS-Report.pdf
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; the Proponent is not able to vote your proxies, nor does
this communication contemplate such an event. The proponent urges shareholders to vote YES on item number 4 following the instruction
provided on the management’s proxy mailing.
PO Box 301840,
Boston MA 02130
|
617-522-2635
|
www.northstarasset.com
Where creative shareholder
engagement is a positive force for change.
TM
The Proponent believes that the current class structure
is NOT in the best long-term interest of our stockholders and the current corporate governance structure is NOT sound and effective.
The current tri-class structure eliminates shareholder checks
and balances over Management decisions. Over the long-term, insider control has been shown to sacrifice performance. In his analysis
of the nature of economic vs. voting ownership of executives, Wharton professor Andrew Metrick concluded that “sales growth
improved as insiders’ financial stakes grew, and worsened as they gained voting clout.”
3
In other words,
disproportional voting rights (wherein insiders have more than one vote per share) can be detrimental to a corporation’s
bottom line. And as others point out, “With few constraints placed upon them, managers holding super-class stock can spin
out of control. Families and senior managers can entrench themselves into the operations of the company, regardless of their abilities
and performance. Finally, dual-class structures may allow management to make bad decisions with few consequences.”
4
The Proponent also believes that the scandals related to data and privacy issues at other technology firms with unequal voting
right are illustrative of the need for better shareholder oversight.
Alphabet claims that “our success is owed in large part
to the leadership and vision provided by our Founders” and that “through their leadership and focus on innovation and
long-term growth, we have established a track record of building a strong company and creating shareholder value.” As fiduciaries,
the Proponent certainly hopes they will continue to be a crucial part of Alphabet’s long-term success. However, research
5
shows that the economic value that insiders, like our company’s founders, receive from
ownership
may incentivize the
founders to promote long-term shareholder value. That research also indicates that insider control due to
dual class stock structures
has potential to derail the positive leadership over the long-term.
With three classes of stock currently at the Company, the proposal
encourages the board and management to find fair and appropriate mechanisms to
transition to one vote per share.
Conclusion:
The Proponent believes that this proposal is in the best interest
of the company—that it is protective of shareholder value without being overly prescriptive or burdensome. Contrary to Company
claims, Alphabet’s existing multi-class share structure is not in the best interest of the company or shareholders.
We urge you to vote “FOR” proxy item #
4
.
Should you have any proposal-specific questions please feel free to contact us at mschwartzer@northstarasset.com.
Date: May 6, 2019
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By:
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/s/ Julie N.W. Goodridge
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Julie N.W. Goodridge
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President & CEO*
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NorthStar Asset Management, Inc.
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*Julie Goodridge is also the trustee of the NorthStar Asset Management, Inc Funded Pension Plan, one of the proponents and the filer of this document.
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3
http://knowledge.wharton.upenn.edu/article/the-effects-of-dual-class-ownership-on-ordinary-shareholders/
4
http://www.investopedia.com/articles/fundamental/04/092204.asp#ixzz3XIMQvxdg
5
https://knowledge.wharton.upenn.edu/article/the-effects-of-dual-class-ownership-on-ordinary-shareholders/
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; the Proponent is not able to vote your proxies, nor does
this communication contemplate such an event. The proponent urges shareholders to vote YES on item number 4 following the instruction
provided on the management’s proxy mailing.
PO Box 301840,
Boston MA 02130
|
617-522-2635
|
www.northstarasset.com
Where creative shareholder
engagement is a positive force for change.
TM
This is not a solicitation of authority to vote your proxy.
Please DO NOT send us your proxy card; the Proponent is not able to vote your proxies, nor does this communication contemplate
such an event. The proponent urges shareholders to vote YES on question number 4 following the instruction provided on the management’s
proxy mailing.
The views expressed are those of the authors and NorthStar Asset
Management Inc. as of the date referenced and are subject to change at any time based on market or other conditions. These views
are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment
advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities
mentioned. It should not be assumed that investments in such securities have been or will be profitable. This piece is for informational
purposes and should not be construed as a research report.
This is not a solicitation
of authority to vote your proxy. Please DO NOT send us your proxy card; the Proponent is not able to vote your proxies, nor does
this communication contemplate such an event. The proponent urges shareholders to vote YES on item number 4 following the instruction
provided on the management’s proxy mailing.
PO Box 301840,
Boston MA 02130
|
617-522-2635
|
www.northstarasset.com
Where creative shareholder
engagement is a positive force for change.
TM
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