Yesterday Google announced great results and a change to their share structure which will in effect give the founders control over the company in perpetuity. The founders in their “Founders’ Letter 2012”, a large part of which I’ve copied below, explain that their reason is to free themselves from outside pressures so they can manage for the long term.
Ever since I was an undergraduate in the early 1990s, and probably before, critics have railed at The City and Wall Street for pressuring companies to focus on the short term to the detriment of long term value creation. It is a well recognised problem, and one that I see affecting large companies all the time when they fail to respond to changing market conditions because it will hurt their business in the near-term. However despite the problem problem being well understood it is tremendously difficult for managers to do anything about. If they ignore the pressure from the financial markets their share price falls and they risk losing their jobs or their company falling victim to take a takeover.
Google is to be praised for taking the step to protect themselves from short-term pressures and I’m pleased to see that Facebook is likely to be doing the same. Hopefully both these businesses will be successful over the long term and investors will come to reward them for insulating themselves from pressure to manage to short-term objectives.
As you can see from the chart below (courtesy of Venturebeat) Google has earned the right to take this step with an impressive performance over the last two years. Maybe, in the not too distant future, other companies which are less strong will also be up to manage themselves for the longer term.
You can read more about this on AllthingsD.