Focus on ETHICS
Will Google Live Up to Its Motto?
Google offers an interesting case study on value maximization and corporate ethics. In 2004, Google’s founders provided “An Owner’s Manual” for shareholders, which stated that “Google is not a conventional company” and that the company’s ultimate goal “is to develop services that significantly improve the lives of as many people as possible.” The founders stressed that it was not enough for Google to run a successful business but that they want to use the company to make the world a better place. The “Owner’s Manual” also unveiled Google’s corporate motto, “Don’t Be Evil.” The motto is intended to convey Google’s willingness to do the right thing even when doing so requires the firm to sacrifice in the short run. Google’s approach does not appear to be limiting its ability to maximize value—the company’s share price increased from $100 to approximately $500 in 6 years.
Google’s business goal is “instantly delivering relevant information on any topic” to the world. However, when the company launched its search engine in China in early 2006, it agreed to the Chinese government’s request to censor search results. Some observers felt that the opportunity to gain access to the vast Chinese market led Google to compromise its principles.
In January 2010, Google announced that the Gmail accounts of Chinese human-rights activists and a number of technology, financial, and defense companies had been hacked. The company threatened to pull out of China unless an agreement on uncensored search results could be reached. Two months later, Google began routing Chinese web searches to their uncensored servers in Hong Kong, a move that was cheered by activists and human-rights groups, but criticized by the Chinese government. In the short term, Google’s shareholders suffered. During the first quarter of 2010, Google’s share price declined by 8.5 percent, compared to an increase of 45.2 percent for Google’s main rival in China, Baidu.com.
Google’s founders seemed to anticipate the current situation in the firm’s “Owner’s Manual.” According to the firm, “If opportunities arise that might cause us to sacrifice short-term results but are in the best long-term interest of our shareholders, we will take those opportunities. We have the fortitude to do this. We would request that our shareholders take the long-term view.” It remains to be seen whether Google’s short-term sacrifice will benefit shareholders in the long run.
· Is the goal of maximization of shareholder wealth necessarily ethical or unethical?
· How can Google justify its actions in the short run to its long-run investors?