Today's New York Times [subscription required] reports that Google Inc. (NASDAQ: GOOG) has launched a for-profit foundation headed by Dr. Larry Brilliant -- an MD who helped eradicate smallpox in India. Google.org represents another front in the competition with Microsoft -- one I think it will win because of its superior goals and unique structure. Whether that's good for Google shareholders is another matter.
I've written about corporate philanthropy in my book Value Leadership -- which describes seven principles that have helped companies to achieve superior financial and stock market performance. As I wrote, Giving to Your Community is one of those principles -- and there is some controversy about whether companies should get involved with philanthropy at all. Stanford economist Milton Friedman famously argued that companies should stick to making money and let their enriched stockholders give as they choose. For most of his career, Warren Buffett seemed to share that philosophy.
I identified three reasons why companies participate in philanthropy -- which I see as concentric rings moving from inside a company to the wider world:
Inspire employees. Southwest Airlines Company (NYSE: LUV) inspires its very service-oriented employees to volunteer at Ronald McDonald Houses -- which shelter families of children receiving treatment at nearby hospitals;
Enrich the community. Wal-Mart Stores Inc. (NYSE: WMT) encourages its employees to give to charitable causes that are particularly meaningful to the communities surrounding each store;
Attack big societal problems. Microsoft Corporation (NASDAQ: MSFT) with its Bill and Melinda Gates Foundation is well-known for giving away billions trying to solve problems that resist the efforts of government like AIDS and Malaria prevention in Africa.
Like Microsoft, Google.org's primary focus is attacking big societal problems. I think its strategy is superior to Microsoft's because it addresses more important issues and its for-profit status increases the odds that it can be self-sustaining rather than depending on the kindness of Google shareholders.
Better cause. Google.org wants to reduce dependence on oil while reducing the effects of global warming. To do that, it's buying a small fleet of cars, consulting with scientific experts, and converting the engines so their gas mileage exceeds 100 miles per gallon (MPG). In my view, this cause is one that could benefit the entire planet. While I admire tremendously what Gates is doing -- the impact of his foundation is more limited.
Better structure. I agree with Google co-founders Larry Page and Sergey Brin, who believe for-profit status will enhance Google.org's ability to achieve its goals. For example, it would let them create a company to sell the high-MPG cars, get financing from venture firms, and hire a lobbyist to push legislation that would give consumers tax breaks to buy the cars. If Google.org makes a profit and pays taxes -- it's good for Google shareholders who don't have to fund the charity and for their government recipients.
Philanthropy is yet another field of endeavor in which Google out-innovates Microsoft -- and while it's hard to quantify -- that ought to be good for Google shareholders in the long run.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College. He has no financial interest in Google, Microsoft, Southwest Airlines, or Wal-Mart.