Google Starts Up Philanthropy Campaign
Wednesday, October 12, 2005
Google Inc. is launching an unusual corporate philanthropy campaign that will focus on fighting poverty and disease in Africa, addressing energy and environmental issues, and assisting nonprofit groups by giving away free online advertising.
Rather than doing all of that through a traditional corporate foundation, which has certain tax advantages, Google is setting aside the equivalent of 3 million shares of stock, worth more than $900 million, to fund an entity called Google.org. It is separately putting about $90 million into a newly created Google Foundation, officials said.
By using Google.org for the bulk of its charitable giving, the company will have greater flexibility in how it deploys the funds since the affiliate will not be subject to the restrictions imposed on foundations by the Internal Revenue Service. For example, Google.org will be able to invest in projects promoting entrepreneurship in Africa that are off limits for foundations because the programs turn a profit. It will also support charitable initiatives that spread the use of technology and could be viewed as questionable for a foundation since they are closely related to Google's business.
Shareholder activists said Google's charitable commitment raises questions about whether this is an appropriate use of company cash or whether company founders Sergey Brin and Larry Page ought to make donations to their favorite causes personally. The foundation of Bill Gates, the founder and chairman of Microsoft Corp. and the nation's richest person according to Forbes, gave away more than a billion dollars last year to fight poverty, hunger and disease around the world. But Gates donates through a personal foundation, rather than through Microsoft itself.
"The board of directors should make it clear to the company's founders what should be personal and what should be corporate," said Patrick S. McGurn, special counsel to Institutional Shareholder Services Inc. "Google is spending shareholders' money, and it raises questions if there is not a valid corporate purpose."
The two founders, who recently rose to No. 16 on the Forbes 400 list of the richest Americans, are worth more than $11 billion each.
McGurn said that at least Google disclosed to potential shareholders up front that it intended to fund philanthropy through the corporation. But, he added, there is a danger that the "lines get blurred between how founders view corporate assets and personal assets."
Corporate philanthropy is one of the first things that gets cut when companies run into financial and legal problems. Fannie Mae, for example, has slashed charitable giving in the aftermath of an accounting scandal at the company, after questions were raised about some expenditures that supported pet projects of top executives.
Hundreds of corporations across the country responded with donations after Hurricane Katrina ripped through the South. Wal-Mart Stores Inc., for example, which has many stores in the region, donated food, clothing and other items to victims and garnered positive press in the process. Separately, the founding Walton family personally donated millions of dollars.
Google Vice President Sheryl Sandberg said initial projects include funding research to examine the best ways to supply clean water and reduce infant mortality in Kenya; training and financing budding entrepreneurs in Ghana who would establish new local businesses there; investing in the socially responsible, New York-based Acumen Fund; and supporting an initiative to supply laptop computers to children who do not have them.
"We are looking for innovative ways to work with different people globally to help solve these problems," Sandberg said in an interview yesterday. "We are looking for opportunities that are sustainable and that we think will make a difference for organizations and for people across the world."
Sandberg said all of the money will not be spent at once. Instead, she said, Brin and Page view the pledge of about $1 billion as a 20-year corporate commitment.
Google also intends to expand a program known as Google Grants, in which it provides nonprofit organizations in about 10 countries with free advertising on the search engine. As an example already underway, Sandberg cited the Make-a-Wish Foundation, which she said gets more than half of its online donations through the free ads.
The moves by Google, which has seen its stock price skyrocket since it went public last year and has been enormously profitable, are consistent with statements made last year by Brin and Page. In a letter accompanying Google's April 2004 initial public offering filing with the Securities and Exchange Commission, the founders said the company would donate 1 percent of its profit and stock to innovative philanthropic efforts aimed at solving global problems. They also said then that they hoped these efforts would someday "eclipse" Google in importance.
"We have a desire to do things at scale, and by scale we mean the kinds of things that can touch not just millions, but hundreds of millions of people, and an approach that combines real innovation, technically and otherwise," Sandberg said.