Brief Company Description
Alphabet Inc. is an American holding company and technology conglomerate. The corporate headquarters is located in Mountain View, California, United States of America (Headquarters Office, 2021). The Alphabet company was established to allow subsidiaries of Google more autonomy and further transparency and accountability within the technology business field. The organization has a controlling owner, Larry Page, and the second-largest individual shareholder, Sergey Brin, who are the company’s founders and are on the board of directors (Reiff, 2021). It can be argued that Alphabet has a managing structure of the board of directors due to controlling owners being actively engaged in the management function (“Role of the board of directors,” 2021). Thus, the company is characterized by a strong commitment to management.
Degree of Independence of the Board from the Management
It can be stated that Alphabet’s board of directors is relatively independent of management. Board independence is included in the company’s corporate governance guideline. It emphasizes that the majority of the directors on the board are independent and do not hold management or other positions within the conglomerate or its subsidiaries (Alphabet Investor Relations, 2021). Currently, the board of directors consists of 11 members, including Page, Brin, and the Chief Executive Officer (CEO), Sundar Pichai (United States Securities and Exchange Commission, 2021). Only three directors serving on the board are members of the organization’s executive team: Page, Brin, and Pichai (United States Securities and Exchange Commission, 2021). Thus, Alphabet follows two primary principles of ensuring the board’s objectivity: the majority of the directors are independent, and there are specialized committees that support its functions (“Role of the board of directors,” 2021). Thus, it can be argued that the corporation’s board has a great degree of independence from the management.
How to Decide on Elect/Remove and Compensation of the CEO
Alphabet’s board of directors is responsible for selecting persons for the position of CEO, their removal, and remuneration. It is considered the most crucial function of the board of directors (“Role of the board of directors,” 2021). The plan for election, retention, replacement, and compensation of the CEO is proposed by the Leadership Development and Compensation Committee of Alphabet (LDCC) (United States Securities and Exchange Commission, 2021). It should be noted that three independent directors of the board serve on the LDCC. Candidates for the position are discussed with the participation of the current CEO (United States Securities and Exchange Commission, 2021). As in other companies, the CEO of Alphabet can be removed from their position by an affirmative vote of the majority (Alphabet Investor Relations, 2020). Any of the board members can initiate the vote to remove the CEO. In addition, LDCC is responsible for the compensation of executive officers, including the CEO, based on the company’s growth, its annual revenue, and key talent factor (United States Securities and Exchange Commission, 2021). Thus, the board leads the process of election, removal, and compensation of the CEO.
Role Separation Between the Chairperson and CEO
It is imperative for the roles of Chair and CEO to be separated to avoid conflict of interest. In some jurisdictions, it is a legal requirement to hire different people for the positions (“Role of the board of directors,” 2021). The chair and CEO roles in the Alphabet holding company are divided. The organization employs Pichai as CEO, with John L. Hennessy serving as the Chair of the board (United States Securities and Exchange Commission, 2021). Such a division in the leadership structure allows for more company accountability while outlining the individual responsibilities of the positions (United States Securities and Exchange Commission, 2021). According to the company bylaws, the CEO is responsible for “general supervision, direction, and control of the business and affairs of the corporation” and board decisions execution (Alphabet Investor Relations, 2020, p. 15). Meanwhile, the Chair is assigned a separate set of responsibilities outlined by the board.
Skillset & Skill Diversity of the Board Members
A diverse skillset and experiences and knowledge of all board members, specifically independent directors, are crucial can substantially impact the growth and development of the company. It is a general recommendation in many jurisdictions to ensure the skill diversity of the board members (“Role of the board of directors,” 2021). Page, Brin, and Pichai have vast experience in business leadership, while Hennessy is experienced in developing technology business ventures (United States Securities and Exchange Commission, 2021). Other board members have experience as board directors, trustees, venture capitalists and a background in finances, investment, and global business development (United States Securities and Exchange Commission, 2021). Overall, the board members of Alphabet Inc. have a relatively varied skillset.
Reasons for Selection
Alphabet, the parent company of Google, is a well-known business venture. As a company with the largest shareholders being members of the board of directors, Alphabet can be classified as a firm with a managing board structure (“Role of the board of directors,” 2021). The board was selected as it has a one-tier structure with executive and non-executive independent directors being employed (“Role of the board of directors,” 2021). It was interesting to learn how ownership and management are separated when a controlling owner is on the board of directors. As the largest shareholders, Page and Brin are involved in the executive function of the venture, opening the possibility for a conflict of interest between stakeholders. The board structure shows that the independent directors, who are the majority, can protect the interest of other shareholders. They can also ensure the company fulfills its primary purpose of delivering more accountability in the technology business field.
References
Alphabet Investor Relations. (2020). Amended and restated bylaws of Alphabet Inc. Web.
Alphabet Investor Relations. (2021). Corporate governance guidelines. Web.
Headquarters Office. (2021). Alphabet Inc. Web.
Reiff, N. (2021). Top Google (Alphabet) shareholders. Investopedia. Web.
Role of the board of directors [PowerPoint]. (2021).
United States Securities and Exchange Commission. (2021). Alphabet. SEC.gov. Web.
