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The Google Split: Voting With Your Feet

Share price is the ultimate way shareholders pass judgment on management.

Sure, "corporate governance" coverage has been a staple of business journalism in the past couple of years, thanks to the debacles of 2008. And we in the business press love to raise shareholder rights and fairness issues whenever a good juicy hostile takeover comes along.

The recent goings-on with Google are a case in point. If you missed it, as Google announced its latest earnings it also said it would be issuing a new non-voting class of shares to existing stockholders. The move essentially answers investor calls for a stock split while ensuring the founders, Larry Page and Sergey Brin, stay in complete control of the company.

Google Search
Source: Google
Google Search

As my colleague Herb Greenberg put it, it makes Google "a public company that has all the perks of being private."

Of course plenty of companies, particularly media companies, have stock structures that keep control in the hands of the ostensible founders or owners; News Corp, New York Times Co., heck, even our very own parent Comcast Corp. (So is Google now more media than tech?) Nevertheless, the Google move rankled many on Wall Street more than normal.

Why? Well, many investing outfits are becoming more active in overseeing the management of the companies they invest in (we've had some terrific stories on the subject this week). And they use their ownership stakes as leverage. With so many high-flying techs going south lately, that's probably a comfort to the money folks. Check out recent events at Yahoo if you'd like an example.

But seeing one of the hotter companies of the past few years erect barriers to such pressure ahead of time may be a bit galling. Particularly in light of Google's "do no evil" mantra. And it might affect the hot new Facebook IPO.

Of course, "evil" is in the eye of the beholder. Any guess as to how the management of an embattled company may view the back-seat driving of a hedge fund? (Again, see Yahoo)

What was telling to me, though, was one of those unscientific, finger in the wind polls we do. It basically asked readers how they felt about the Google move. And the result was a fairly even split. Not the totally lopsided votes we get on most of our "how outraged are you?" surveys.

More importantly, Google stock slid about 4 percent the day following the announcement. Sure, it was a down market. But Google has been in a general slide since the end of March. Stock classes aside, fundamentals like a price decline in search driven ads seem to be tugging at the stock.

And were the bulk of Google shareholders really that concerned about control?

“If you’ve invested in Google, you knew from the beginning that you were a second-class shareholder,” said Mark Mahaney of Citi Investment Research on CNBC's "Squawk Box" last week.

Indeed, for the average investor, you are pretty much second class with any stock you buy. Sure, the Calpers and the Carl Icahns of the world have the wherewithal to fight governance battles and make companies change their strategies. Those are the battles where stock structures matter.

But for most investors, the vote on management basically comes down to buy, sell or hold. That's something we who cover these fracases…as well as managements…should remember.

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Allen Wastler is managing editor of CNBC.com. Follow him on Twitter @AWastler. You can catch his commentary on CNBC Radio. And check out his fiction.