不是每个资本主义企业都能像Google

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From The Times January 16, 2010

Google beards Chinese tiger

http://business.timesonline.co.uk/tol/business/columnists/article6990509.ece

Patrick Hosking:

Google’s dispute with China over censorship and spying is fascinating on many levels. But one aspect that has been largely overlooked is the sheer scale of the financial sacrifice Google is making by taking its moral stand. In pursuit of their laudable aims, the co-founders Sergey Brin and Larry Page are burning dollar bills on an industrial scale.

It is hard to think of any listed company flushing away anything more than petty cash on a matter of principle alone. Yet Google is poised to write off certainly hundreds of millions of dollars, probably billions of dollars.

To recap, Google, after falling victim to a string of cyber-attacks on customers who were human rights activists, announced this week that it would continue to operate its Chinese language service Google.cn only if it was no longer subject to censorship by the authorities. Water buffalo are more likely to fly than Beijing is to allow uncensored coverage of topics such as the Tiananmen Square massacre, so Google.cn looks like (sesame seed) toast.

The potential financial impact has been played down by some. It is argued that Google’s Chinese revenues, estimated at $350 million, are a tiny fraction of Google's $20 billion of total sales.

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But revenues are a poor proxy for value. It is China’s exciting growth prospects, vast population and soaring appetite for search which makes the business so valuable. Google is number two in China, with a 30 per cent market share, a well entrenched position that most firms in most industries would drool over. Nasdaq-listed Baidu, the search market leader in China with 60 per cent share, is valued at $16 billion. Even at a conservative estimate, therefore, the Chinese arm of Google would surely have a price tag in the low billions.

Most of Google China’s revenues come from selling to Chinese advertisers on the mainstream Google.com site, not the censored Google.cn site. Google.cn is almost certainly doomed, but there also has to be a serious risk that the entire Google group is kicked out of the country.

Deliberately introducing a policy that destroys value on such an epic scale goes against every instinct of the listed company director (though many of them seem to have no trouble whatsoever doing it accidentally). The Google board discussion must have been extraordinary. It would be astonishing if the directors had not taken legal advice that they were not breaching their fiduciary duty to shareholders by taking such a stand.

The decision will help boost Google’s ethical reputation. But the benefits — in terms of customer loyalty and usage — are impossible to quantify and will not appear on the balance sheet. By contrast, mothballing a fabulously rich asset is all too tangible — producing an immediate write-off. It will be interesting to see whether Google makes any initial provision when it reports full-year results next week.

Mr Brin, reportedly the driving force behind the policy decision, has been able to push it through with no visible resistance from shareholders for three reasons.

First, he has always warned shareholders that the business would not be run in a conventional way.

When it floated in 2004, there were emphatic health warnings that it might make decisions for non-commercial reasons and would do “good things for the world” even at the expense of short-term profit. Second, outside shareholders have limited powers to complain because the shares owned by Brin and his inner-circle carry ten times as many votes as ordinary shares. Third, Google has defused any possible serious criticism by the simple expedient of making colossal amounts of money for everybody. The shares have soared from a float price of $85 to more than $580. While they continue to deliver that sort of return, the Google executives are impregnable anyway.

Google is that rare beast, a global giant giving Western capitalism a good name. But it won’t last for ever. One day Google will stumble financially. At that point some shareholders will start to regard Mr Brin’s causes not as quirky adventures that they can happily tolerate but sanctimonious and expensive distractions. They will soon forget those health warnings.

Google is at the same golden stage of shareholder tolerance as Body Shop in the early 1980s. While the cash registers were tingling and the share price rising, investors happily went along with its late founder Anita Roddick and her environmental and feminist excursions. Eventually, however, things turned ugly. Roddick was sidelined.

One day, sadly, Google will falter and Brin and Page will face the same fate. They will be unfairly criticised for failing to put short-term returns first. They will be ridiculed for their quirky, indulgent staff perks such as free washing machines. They will be accused of a preachy disregard for the business and its investors.

But just for now they are gloriously safe and free to stick up two fingers at corporate orthodoxy. That is worth celebrating.

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