Last November, the Securities and Exchange Commission asked Alphabet to further clarify its unique corporate governance structure. Implemented in 2015 as part of a massive reorganization, the SEC wanted insight into the decision-making process within the parent company and its “Other Bets.”
Alphabet responded to the questions in December (via CNBC), but it was only made public by the SEC today. The response provides an interesting look at the corporate structure of Alphabet, but for the most part is not too unexpected.
Larry Page is Alphabet’s “chief operating decision maker” or CODM. The Google co-founder “determines the Company’s overall business strategy and is responsible for the allocation of resources and assessment of performance.”
Under him are CEOs of the various Alphabet Bets who are “directly accountable to, and maintain regular contact with Larry Page.” The letter explicitly notes that “within Google, Sundar Pichai is the only executive who reports directly to and maintains regular contact with Larry Page.”
After Page allocates resources and evaluates performance, those CEOs are “responsible for making decisions about resources to be allocated within and assessing performance of their respective operating segment.”
While Page receives weekly, monthly, and quarterly breakdowns of revenue and operating profitability, these reports do not breakdown results by Google division, like Hardware, Ads, or YouTube.
No profitability and/or expense information for any product areas within Google is provided to Larry Page and/or the Board of Directors as part of the weekly, quarterly or any other regular reporting.
Sergey Brin receives the same financial information provided to Page, and the letter continues to note that his current role is as Alphabet president and board member focussing on “advising research and product development initiatives within Other Bets.”
Meanwhile, Alphabet CFO Ruth Porat plays a big role in determining the annual business plans of Google, each of the Other Bets, and Alphabet.
Of course, Sundar Pichai as Google CEO does receive the detailed breakdown. The SEC letter goes on to clarify that in turn Pichai has no control, power, or information over the Other Bets.
To assess financial performance, he receives weekly and quarterly reporting on the operating results of Google. Weekly reports include revenue disaggregated by product areas (e.g., Advertising, YouTube, Hardware, Cloud, etc.). Weekly reports further include operating results, capital expenditures, and headcount for Google as a whole. Quarterly reports include operating results for product areas and product categories (i.e., one level below product areas) within Google, expenses for certain functions, and headcount.
Pichai has the authority to enter Google into “Non-standard licensing or similar arrangements, investments, mergers and acquisitions, and other commitments,” as well as “Capital expenditures, real estate, commercial arrangements, including licensing, partnership and revenue generating agreements.”
However, above a certain unspecified monetary cap, he must receive authority from Page and the board of directors.
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