Google Leaves Shareholders in Dark About 'Green' Investments
In Lewis Carroll’s classic tale Through the Looking Glass, Alice and Humpty Dumpty have a befuddled discussion over the meaning of words:
Humpty Dumpty: “When I use a word it means just what I choose it to mean -- neither more nor less.”
Alice: “The question is whether you can make words mean so many different things.”
Humpty Dumpty: “The question is which is to be master -- that’s all.”
In Mountain View, California, at the Google headquarters, the word in question is “transparency,” and the master is Google’s executive team and board of directors. It is the company’s shareholders who, like Alice, are left confused and in the dark.
Google has come under fire recently for its lack of transparency. Google has a long history of secrecy, but now it appears to be keeping important information from its shareholders. The most recent controversy surrounds Google’s sortie into alternative energy investments.
Since its inception and initial public offering, Google has created immense shareholder value by focusing on its core Internet, technology, and advertising businesses. However, in recent years Google has spent millions in alternative energy markets. Google’s foray into alternative energy is suspicious for multiple reasons and begs for an explanation.
Perhaps the most curious aspect of Google’s green energy investments is that they align more closely with Google board member John Doerr’s personal holdings than with the company’s core business.
Doerr is fanatical about alternative energy, and has spent much of his career advocating for liberal climate change policies. In California, Doerr has been a leader in the cap-and-trade movement. At the federal level, Doerr serves on President Obama’s Economic Recovery and Advisory Board, where he is in a position to influence energy policy. A venture capitalist by trade, Doerr is a partner at Kleiner Perkins Caufield & Byers, a venture capital firm that is heavily invested in alternative energy. According to his corporate bio, Doerr is primarily passionate about “[g]reen tech innovation and policies to fight global warming.”
Doerr’s personal actions alone are insignificant to Google’s shareholders, yet coupled with Google’s green energy investments they raise ethical questions that the company should address.
A 2009 GigaOm news story reported that both Google and Doerr’s firm invested millions in the same small geothermal company: Altarock Energy. Without transparency, shareholders are left to believe either that Doerr is pulling the strings on Google’s alternative energy investments -- potentially for his own benefit -- or the company is bailing out one of its own. Either scenario is likely a losing proposition for Google investors.
As a board member, Doerr has a fiduciary duty to Google shareholders and not to his own wallet or his personal policy preferences. And shareholders have a right to know how this incredible happenstance materialized -- but Google’s leadership isn’t talking.
That is why, representing the National Center for Public Policy Research, I presented a shareholder proposal at Google’s June 2 shareholder meeting asking the company to disclose any board member investments that represent a financial conflict of interest for Google.
The proposal called for a company report to the shareholders that details these conflicts and explains how they are addressed. Shareholders, our proposal said, have a right to know if board members are exerting undue influence or personally benefiting from questionable investments that may damage Google’s bottom line.
Google’s board responded in its proxy statement, saying:
We agree with the [National Center] that transparency and compliance with the Google Code of Conduct are important. However, we disagree that a report to stockholders is a useful mechanism for ensuring that transparency.
So Google likes the idea of transparency, but not the actual practice of it?
Google shareholders are the company’s true owners, and Google’s corporate leaders should be good stewards of investor money. Alternative energy investments are speculative, and it would be worrisome to shareholders if Google were to use shareholders’ money to support Doerr’s risky moves, or to blindly follow his wide-eyed supposition.
These transactions may have breached the company’s Code of Conduct policy. Google’s Code of Conduct specifically includes a conflict of interest policy to address financial conflicts that involve personal investments.
Google’s Code of Conduct is very clear. “Googlers,” as they refer to themselves, must ask whether a financial situation could be perceived to create an incentive for the employee, and if so, they must avoid the conflict.
Instead of accepting our proposed, effortless call for transparency, our proposal was met with recalcitrance. Formally, the board of directors recommended that shareholders vote against the proposal. However, many of the board members could not be bothered to attend the shareholder meeting.
And Google leadership that did attend acted unprofessionally.
Leading the way was Google’s new CEO, Larry Page, who displayed his own brand of apathy. Traditionally, corporate CEOs conduct shareholder meetings. Not at Google. Page was late and generally uninterested in engaging the shareholders. Google Senior Vice President David Drummond conducted the business of the meeting.
Customarily, corporate CEOs thank the presenters for their proposal and offer laudatory words and then state the company’s opposing (or accepting) position diplomatically -- but Google’s meeting was far from ordinary. Drummond did not fully address the issue in the proposal, tersely stated that the board rejected the proposal, and then moved on.
There was one group, however, that loudly supported the proposal -- Google shareholders.
My call for transparency received a rousing ovation from the shareholders in attendance. Google executives heard loud and clear that shareholders want to know more about what is motivating the company’s alternative energy investments.
At different segments of the meeting, Google officers mentioned that they thought alternative energy was important for Google and the country. At one point, Page suggested the company did not spend huge resources in the alternative energy markets. These half-responses do not explain the apparent conflict of interest between Google and Doerr and why Google’s policy preferences trump sound business.
During the question-and-answer session, Google shareholder Shelton Ehrlich praised the National Center’s proposal, and accused the company’s executives of having a “religious conflict of interest” for bowing at the altar of green energy solutions.
Even Glass Lewis, one of the major proxy voting firms, called on Google to be transparent, and to explain to “what extent Doerr participated in these [alternative energy] investment decisions.”
In the end, and in large part due to the board’s negative recommendation, the proposal did not receive the required votes for passage.
Google needs a better communication mechanism to ensure its investors understand the company’s spending. The board’s haughty performance and its dismissive attitude towards their shareholders’ interests add weight to the National Center’s suspicion that Google is not necessarily acting in the best interest of the company.
A liberal devotion to alternative energy policy solutions is not an acceptable business explanation for dedicating millions of shareholder dollars to an uncertain return. Green energy companies often do not actually compete in a marketplace. Without government subsidies and a strong renewable energy standard, many of these companies would go under.
Across America, alternative energy companies are closing shop. In Devens, Massachusetts, Evergreen Solar -- a solar panel company -- closed its headquarters and now does much of its work in China despite massive tax breaks and incentives from the Commonwealth. And just down the road from Google’s headquarters, another solar panel company, Solyndra Solar, received a $535 million securitized loan from President Obama’s stimulus bill to expand its operations and hire new workers. Solyndra hired no new employees and actually downsized: its operations are not profitable and the federal government may never recoup its money.
Google’s future in alternative energy may have the same drastic conclusion.
Nothing truly worthwhile hides in the dark. Google should explain its motivation behind its alternative energy investments, and what role Doerr played. Google’s leadership should share the truth with the company’s true owners -- the shareholders.