In all of these cases, insiders control a large percentage of shareholder votes.
- Adelson, his family, and entities established for his family’s benefit own about 52% of the Las Vegas Sands Corp. (NYSE:LVS)’s company stock
- CEO/Chairman Stephen Wynn of Wynn Resorts, Limited (NASDAQ:WYNN), along with his ex-wife and fellow director Elaine Wynn, own nearly 20% of the company’s stock
- Boyd Gaming Corporation (NYSE:BYD)’s CEO/Chair William Boyd, and fellow board members Marianne Boyd Johnson and William R. Boyd, together own around 37% of the company stock.
The concentration of ownership may create other risks to outside shareholders apart from the potential for related-party transactions that can put insiders’ interests above those of average shareholders.
Along with Brin, fellow co-founder and Google CEO Larry Page and Google chairman Eric Schmidt controlled about 64% of Google’s voting power as of its last 10-Q filing. In a proposal pushing for Google to give all shares equal voting power, one shareholder suggested that the current power structure allows the company to offer compensation packages that cannot be justified in terms of long-term shareholder value, including Schmidt’s 2011 $100 million equity compensation package that had no job performance requirements.
The Foolish bottom line
While related-party transactions can be legitimate, they also create the potential for conflicts of interest and can create a situation in which insiders’ interests are put ahead of the average outside shareholder. For this reason, I believe companies should avoid engaging in related-party transactions unless they can offer a clear and convincing argument that demonstrates to shareholders that their capital is being used wisely.
Unfortunately, I don’t believe Google’s management has offered a sufficient justification of its continued investment in 23andMe.
The article Is Google Using Shareholder Capital Properly? originally appeared on Fool.com.
Motley Fool contributor M. Joy Hayes, Ph.D. is the Principal at ethics consulting firm Courageous Ethics. She as no position in any stocks mentioned. Follow @JoyofEthics on Twitter. The Motley Fool recommends Google. The Motley Fool owns shares of Google.
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