Google's Corporate Governance
Google's Corporate Governance
Google's Corporate Governance
Submitted To:
Corporate Governance
Submitted By:
Nistha Pradhanang
EMBA Fall 2015 Semester III
Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders. The principal stakeholders are the shareholders, management,
and the board of directors. Other stakeholders include labor (employees), customers, creditors
(e.g., banks, bond holders), suppliers, regulators, and the community at large. Since corporate
governance also provides the framework for attaining a company's objectives, it encompasses
practically every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure. With globalization, firms must tap
domestic and international capital markets in quantities and ways that would have been
inconceivable even a decade ago. Increasingly, individual investors, funds, banks, and other
financial institutions base their decisions not only on a company's outlook, but also on its
reputation and its governance. It is this growing need to access financial resources, domestic
and foreign and to harness the power of the private sector for economic and social progress that
has brought corporate governance into prominence the world over. Sound corporate
governance is important not only to attract long-term foreign capital, but more especially to
broaden and deepen local capital markets by attracting local investors-individual and
institutional.
From a corporation's perspective, the emerging consensus is that corporate governance is about
maximizing value subject to meeting the corporation's financial and other legal and contractual
obligations. This inclusive definition stresses the need for boards of directors to balance the
interests of shareholders with those of other stakeholders employees, customers, suppliers,
investors, communities-in order to achieve long-term sustained value for the corporation.
Today a company has a very large number of shareholders spread all over the nation and even
the world; and a majority of shareholders being unorganized and having an indifferent attitude
towards corporate affairs. The idea of shareholders democracy remains confined only to the law
and the Articles of Association; which requires a practical implementation through a code of
conduct of corporate governance.
The pattern of corporate ownership has changed considerably, in the present-day-times; with
institutional investors (foreign as well Indian) and mutual funds becoming largest shareholders
in large corporate private sector. These investors have become the greatest challenge to
corporate managements, forcing the latter to abide by some established code of corporate
governance to build up its image in society.
Corporate scams (or frauds) in the recent years of the past have shaken public confidence in
corporate management. The event of Harshad Mehta scandal, which is perhaps, one biggest
scandal, is in the heart and mind of all, connected with corporate shareholding or otherwise
being educated and socially conscious.
The need for corporate governance is, then, imperative for reviving investors confidence in the
corporate sector towards the economic development of society.
Society of today holds greater expectations of the corporate sector in terms of reasonable price,
better quality, pollution control, best utilization of resources etc. To meet social expectations,
there is a need for a code of corporate governance, for the best management of company in
economic and social terms.
Hostile Take-Overs:
Hostile take-overs of corporations witnessed in several countries, put a question mark on the
efficiency of managements of take-over companies. This factors also points out to the need for
corporate governance, in the form of an efficient code of conduct for corporate managements.
It has been observed in both developing and developed economies that there has been a great
increase in the monetary payments (compensation) packages of top level corporate executives.
There is no justification for exorbitant payments to top ranking managers, out of corporate
funds, which are a property of shareholders and society.
This factor necessitates corporate governance to contain the ill-practices of top managements of
companies.
Globalization:
Desire of more and more Indian companies to get listed on international stock exchanges also
focuses on a need for corporate governance. In fact, corporate governance has become a
buzzword in the corporate sector. There is no doubt that international capital market recognizes
only companies well-managed according to standard codes of corporate governance.
Google is now worth billions and has its own place within the Oxford English Dictionary as a
verb, but it took two men with a big dream to turn a small idea into a reality that has made a
significant contribution to how the world uses the internet. Larry Page and Sergey Brin were
both PhD candidates when they met in 1996 at Stanford and came up with the concept for a
search engine that they were going to name BackRub. One year later, in 1997, they renamed
it and on the 14th September 1997 Google.com was officially registered as a domain name. A
man named Milton Sirotta was responsible for coming up with the term from which Google
was derived (googol), and it refers to the number 1 with 100 zeros following it.
The restructuring is clearly a response to Googles stagnant share price and investor unease.
Googles current theory of value creation is essentially to funnel its vast profits from the
search and advertising business into the hiring of strong talent, and then to give employees
wide latitude to explore and pursue whatever they wish. This is embodied not only in the
pattern of rather unrelated investments and acquisitions, but in policies about hiring, salaries,
and 20% free time.
Investors have been uneasy about this strategy, but Larry Page and Sergey Brin have also
composed a corporate governance regime that insulated them from much shareholder
pressure for change. Eventually, with growth in search advertising slowing, investors
dissatisfaction manifested itself in a stagnant stock price. And in recent months the company
has taken steps to rein in some of its investments, slowing growth in expenses, and also
tightening the reins on the 20% free time policy. These were the beginnings of a shifting
direction at Google.
Analysts had their own problem with Googles structure: its bundle of businesses was
extremely difficult for them to evaluate. The primary challenge for analysts has been that the
performance of the main business was not transparentthe financial returns of the search
engine and advertising business could not be observed separately from the investments in all
of the new businesses. The new structure ensures that there will be, at a minimum,
independent accounting numbers produced for the Google business, and perhaps for the
others as well.
Investors will inevitably push for more. The markets response has so far been positive, with
the stock price up 6%. There will also be a longer-term performance impact, as greater
transparency of both its cash flows and investments prompts greater discipline and
accountability. This move may not fully pacify the uneasy investor. While this new
organizational form increases transparency, that transparency only further illuminates the
disconnect between Alphabets various businesses.
1. Size of the Board. The authorized number of directors will be determined from time to time
by resolution of the Board, provided the Board consists of at least five members.
2. Board Membership Criteria. The Nominating and Corporate Governance Committee will
evaluate candidates for membership on the Board, including candidates nominated or
recommended by stockholders, in light of criteria established by the Board, and recommend
to the Board the slate of nominees for election at the Annual Meeting of Stockholders or
nominees for election to fill interim vacancies on the Board.
3. Director Independence. A majority of directors on the Board will be independent as
required by the NASDAQ Stock Market. The Board also believes that it is often in the best
interest of Alphabet and its stockholders to have non-independent directors, including current
and (in some cases) former members of management, serve as directors. Each independent
Director who experiences a change in circumstances that could affect such Directors
independence should deliver a notice of such change to Alphabets Secretary.
4. Director Tenure. Directors are re-elected each year and the Board does not believe it should
establish term limits because directors who have developed increasing insight into Alphabet
and its operations over time provide an increasing contribution to the Board as a whole. To
ensure the Board continues to generate new ideas and to operate effectively, the Nominating
and Corporate Governance Committee shall monitor performance and take steps as necessary
regarding continuing director tenure.
5. Directors Who Change Their Present Job Responsibility. Any Director who experiences a
material change in his/her job responsibilities or the position he/she held when he/she came
on the Board should deliver a notice of such change in status to the Executive Chairman of
the Board and/or the Lead Independent Director. The Nominating and Corporate Governance
Committee will then evaluate whether the individual continues to satisfy the Boards
membership criteria in light of his/her new occupational status and shall recommend to the
Board the action, if any, to be taken with respect to such individual.
II. Principal Duties of the Board of Directors
Additionally, the Board has responsibility for risk oversight, with reviews of certain areas
being conducted by the relevant board committees. The Board is responsible for oversight of
strategic, financial and execution risks and exposures associated with Alphabets business
strategy, product innovation and sales road map, policy matters, significant litigation and
regulatory exposures, and other current matters that may present material risk to Alphabets
or its subsidiaries or controlled affiliates financial performance, operations, infrastructure,
plans, prospects or reputation, acquisitions and divestitures.
Directors are expected to invest the time and effort necessary to understand Alphabets
business and financial strategies and challenges. The basic duties of the directors include
attending Board meetings and actively participating in Board discussions. Directors are also
expected to make themselves available outside of board meetings for advice and consultation.
2. To Select the Chair and Chief Executive Officer. The Board will select the chairman of the
Board and the chief executive officer in compliance with Alphabets Certificate of
Incorporation and Bylaws, which provides that the chairman of the board will not be a current
employee of Alphabet or any of its subsidiaries, or someone employed by Alphabet or any of
its subsidiaries any time within the prior three years, unless the appointment is approved by
two-thirds of the disinterested directors.
3. To Evaluate Management Performance and Compensation. At least annually, the
Leadership Development and Compensation Committee will evaluate the performance of the
chief executive officer and the other officers. It will review and approve the compensation
plans, policies and arrangements for executive officers and other officers. It will also evaluate
the compensation plans, policies and programs for officers and employees to ensure they are
appropriate, competitive and properly reflect Alphabets objectives and performance.
4. To Review Management Succession Planning. The Leadership Development and
Compensation Committee will review at least annually and recommend to the Board plans
for the development, retention and replacement of executive officers of Alphabet and its
subsidiaries.
5. To Monitor and Manage Potential Conflicts of Interest. All members of the Board must
inform the Audit Committee of the Board of all types of transactions between them (directly
or indirectly) and Alphabet or any of its subsidiaries or controlled affiliates as soon as
reasonably practicable even if these transactions are in the ordinary course of business. The
Audit Committee of the Board will review and approve all related party transactions for
which audit committee approval is required by applicable law or the rules of the NASDAQ
Stock Market. The Board will also ensure that there is no abuse of corporate assets or
unlawful related party transactions.
6. To Ensure the Integrity of Financial Information. The Audit Committee of the Board
evaluates the integrity of Alphabets accounting and financial reporting systems, including
the audit of Alphabets annual financial statements by the independent auditors, and that
appropriate disclosure controls and procedures and systems of internal control are in place.
The Audit Committee reports to the Board on a regular basis and the Board, upon the
recommendation of the Audit Committee, takes the actions that are necessary to ensure the
integrity of Alphabets accounting and financial reporting systems and that such controls are
in place.
7. To Monitor the Effectiveness of Board Governance Practices. The Nominating and
Corporate Governance Committee of the Board will annually review and evaluate the
effectiveness of the governance practices under which the Board operates and make changes
to these practices as needed.
Directors are expected to prepare for, attend, and contribute meaningfully in all Board and
applicable committee meetings in order to discharge their obligations. Consistent with their
fiduciary duties, directors are expected to maintain the confidentiality of the deliberations of
the Board and its committees.
1. Frequency of Board Meetings. Regular meetings of the Board shall be held at such times and
places as determined by the Board. There will be at least four regularly scheduled meetings of
the Board each year but the Board will meet more often if necessary.
2. Attendance at Board Meetings. To facilitate participation at the Board meetings, directors
may attend in person, via telephone conference or via video-conference. Materials are
distributed in advance of meetings.
3. Other Commitments. Each member of the Board is expected to ensure that other existing and
future commitments, including employment responsibilities and service on the boards of
other entities, do not materially interfere with the members service as director. The members
of the Board cannot have more than five (5) public company board memberships, including
membership on the Alphabet Board.
4. Board Membership Limits of the Chief Executive Officer. The chief executive officer cannot
have more than three (3) public company board memberships, including membership on the
Alphabet Board.
5. Executive Sessions of Independent Directors. NASDAQ rules require independent Board
members to regularly meet in executive session. The independent Board members shall meet
in executive session at each regularly scheduled Board meeting, and at other times as
necessary. Committees of the Board may also meet in executive session as deemed
appropriate.
6. Board Access to Management. Members of the Board will have access to Alphabets
management and employees as needed to fulfill their duties. Furthermore, the Board
encourages management to, from time to time, bring managers into meetings of the Board
who: (a) can provide additional insight into the items being discussed because of personal
involvement in these areas, and/or (b) are managers with future potential that senior
management believes should be given exposure to the Board.
7. Code of Conduct. Alphabet has adopted a Code of Conduct to provide guidelines for the
ethical conduct by directors, officers and employees. The Code of Conduct is posted on
Alphabets website.
8. Engaging Experts. The Board and each committee of the Board will have the authority to
obtain advice, reports or opinions from internal and external counsel and expert advisers and
will have the power to hire, at the expense of Alphabet, legal, financial and other advisers as
they may deem necessary or appropriate, without consulting with, or obtaining approval
from, management of Alphabet in advance.
9. Minimum Stock Ownership Requirement. In an effort to more closely align the interests of
our directors and senior management with those of our stockholders, each director and senior
officer will be required to meet the following minimum stock ownership requirements: (i)
each director shall own shares of Alphabet stock equal in value to at least $750,000 (Seven
Hundred and Fifty Thousand Dollars); (ii) the Founders of Google Inc., the Chief Executive
Officer of Alphabet, our Executive Chairman, and the Chief Executive Officer of Google Inc.
shall own shares of Alphabet stock equal in value to at least $14,000,000 (Fourteen Million
Dollars); and (iii) Senior Vice Presidents of Alphabet or Google Inc. shall own shares of
Alphabet stock equal in value to at least $4,000,000 (Four Million Dollars). Our directors
shall have five years from the earlier of the date they became a director of Alphabet or
Google Inc. to come into compliance with these ownership requirements. The Founders, our
Chief Executive Officer, our Executive Chairman, the Chief Executive Officer of Google
Inc., and Senior Vice Presidents of Alphabet or Google Inc. shall have five years from the
later of (x) March 12, 2012 or (y) the earlier of the date they assumed such roles at Alphabet
or Google Inc. to come into compliance with these ownership requirements. Alphabet
advisors who dont receive annual equity grants and the CEOs of Alphabets Other Bets are
exempt from the minimum ownership requirements for Senior Vice Presidents set forth
above. Compliance with the minimum stock ownership level will be determined on the date
when the grace period set forth above expires, and annually on each December 31 thereafter,
by multiplying the number of shares held by each director and senior officer and the average
closing price of those shares during the preceding month.
1. Number and Composition of Committees. The Board currently has the following standing
committees: an Audit Committee, a Leadership Development and Compensation Committee,
a Nominating and Corporate Governance Committee and an Executive Committee. From
time to time the Board may form a new committee or disband a current committee depending
on the circumstances. Each committee complies with the independence and other
requirements established by applicable law and regulations, including SEC and NASDAQ
rules.
2. Committee Appointments. Members of all standing committees are appointed by the Board.
The Board determines the exact number of members and can at any time remove or replace a
committee member.
3. Committee Proceedings. The Chair of each committee of the Board will, in consultation with
appropriate committee members and members of management, and in accordance with the
committees charter, determine the frequency and length of committee meetings and develop
the committees agenda.
V. Director Orientation and Continuing Education
Alphabet provides an orientation program for new directors that includes written materials,
oral presentations, and meetings with senior members of management. The orientation
program is designed to familiarize new directors with Alphabets business and strategy. The
Board believes that ongoing education is important for maintaining a current and effective
Board. Accordingly, the Board encourages directors to participate in ongoing education, as
well as participation in accredited director education programs. The Board will reimburse
directors for expenses incurred in connection with these education programs.
The Board develops and maintains a process whereby the Board, its committees and its
members are subject to annual evaluation and self-assessment. The Nominating and
Corporate Governance Committee oversees this process.
The Leadership Development and Compensation Committee of the Board has the
responsibility to review and recommend to the Board compensation programs for non-
employee directors.
The Audit Committee of the Board will ensure that the lead audit partner and the audit review
partner be rotated every five (5) years as is required by SEC rules.
1. Stockholder Communications to the Board. Stockholders may contact the Board about bona
fide issues or questions about Alphabet by sending an email to:
Alphabet Inc.
Attn: Corporate Secretary
1600 Amphitheatre Parkway
Mountain View, CA 94043
Email: [email protected]
Each communication should specify the applicable addressee or addressees to be contacted as
well as the general topic of the communication. Alphabet will initially receive and process
communications before forwarding them to the addressee. Alphabet generally will not
forward to the directors a communication that it determines to be primarily commercial in
nature or related to an improper or irrelevant topic, or that requests general information about
the company.
2. Annual Meeting of Stockholders. Each director is encouraged to attend the Annual Meeting
of Stockholders.
Google is no. 5 in the list of the most reputable companies on the planet in 2017. The 2017
Corporate Accountability Index a company ranking put together by a non-profit chaired by
Alphabets Eric Schmidt has ranked Google top dog in the technology sector, while Apple
sits at no. 7 with a little over half Googles score.
A major factor for that has been the focus on corporate governance practice which has made
it possible for the company to be ranked above many other big companies.
Startups who like to study Google for tips on how to emulate its success may wonder what all
the fuss was about. But companies would do well to look closely at how seriously the tech
giant takes vanilla business issues like corporate structure and public policy. Overlooking
them can be fatal. But getting it right can be a major point of differentiation and springboard
for success. Its worth remembering that Google, despite being one of the most valuable
companies in the world, is still only 16 years old.
Hence, it is clear that with good governance practices, a company can be successful in
building its standards and sustaining in this competitive business world. Googles effective
corporate governance under their parent company Alphabet has ensured that there is
transparency in the company and the company continues to do good job, increase its
reputation and be out of trouble.