Here are some points I've heard raised:

  • Google faced a choice between operating a censored search engine in China, and completely denying Chinese citizens access to search engines;
  • Google faced a choice between operating a censored search engine in China, and not doing business in China at all;
  • Including a note on the search engine results indicating they've been censored is the most Google can do to mitigate any potential censorship-related damage;
  • Google is required by US law to pursue profits to the exclusion of ethical considerations;
  • Google's decision to operate a censored search engine in China is the most profitable course of action it could take;
  • Google has, with this decision, discarded the principle of "Don't be evil" which they have followed up to this point; and
  • J.<> Random Blogger knows enough about all the considerations that went into this decision, to be able to second-guess it sensibly.

The first point is a false dichotomy. Google isn't in a position to decide whether Chinese people will have access to search engines. Google isn't the only search engine in the world. Google isn't even such a big deal in China as it is here, and even here, Google is certainly not the only search engine in the business. There are lots of native Chinese search engines, and international search engines other than Google. So everyone who says, "Well, aren't filtered Google results better than no Internet access at all?" is distorting the issue. And note that that statement - which is how it's being phrased by a lot of people who say such things - is overstating "no Google" not even just to "no search engine" but all the way to "no Internet access at all". Even if Google doesn't exist in China, even if Google is completely blocked, Chinese people will still be able to enjoy pretty much all the benefits of the Net that their government will allow them to have.

Furthermore, assuming Google exists in China in some form, we can ask whether it makes so much difference whether Google censors its search results. Anyone who's in a position to use the Net in China knows that they're behind the Great Firewall and that they have the government looking over their shoulder. Nobody who's on the Net in China and is aware that the government blocks access to some Web sites, has all that much doubt about what kinds of ideas are on those blocked sites. The presence or absence of a site on the Google China results is not going to make the difference between someone knowing about the existence of non-Communist political systems or not.

In the case of any search engine results that the government really doesn't want you to see, it doesn't matter much whether they appear in Google results because when you click on the result link, you won't get to read the Web site because it'll be blocked by the Great Firewall. In the case of any query that makes it look like you're looking for things you aren't supposed to read, you'd better know that you shouldn't be typing that into Google anyway, because your connection may be tapped. If you have the ability to get past the Great Firewall and you can either hide your tracks or you don't worry about getting caught, then you'll be able to access U.S. Google, or some other non-Chinese search engine, through whatever hole you have engineered in the Great Firewall. I just can't see a situation where it really makes all that much difference whether Google China blocks search results according to Chinese censorship laws. It's just not that big a deal. It's a theoretical argument about ethical abstractions, not a big practical difference in Chinese people's lives.

So it's not true that Google was forced into this decision in order to avoid the greater harm of denying Chinese people access to a modern search engine. Google isn't such great shakes; there are other search engines. But it's also not true that Google was forced into this decision in order to be allowed to do business legally in China at all. Google isn't that limited; they have other businesses besides the search engine. The search engine isn't even all that profitable; it costs money to operate, and they do it just to provide a vehicle for their advertising.

Google could, for instance, say, "Well, we unfortunately can't operate our search engine in China because operating it without censorship, which is part of the definition of operating it at all, would violate Chinese law; so instead we'll just run our ad network and sell dedicated search appliances and...". If you believed (possibly because of the business considerations I'll discuss below) that Google had to operate some sort of business in China, Google would still have plenty of other options on how to do that without bowing to government censorship of search results. "Google must operate in China, therefore Google must censor its search results" doesn't work even if you believe "Google must operate in China".

Another thing to think about, which I haven't heard raised or answered in the present discussion, is whether Google will take what seem to me to be the obvious steps they could take to limit the possible negative results of their decision. They're going to put notices on their search engine mentioning that some results have been blocked due to the censorship rules. Fine. But are they also going to refrain from keeping records of who searches for what? Are they going to not hand out long-lived cookies to link one session to the next? Even the USA, a nation whose freedom is generally taken as a given and an absolute in this discussion, currently has a government demanding access to Google's search logs, and some people including me were already years ago suggesting that those logs might not be a wonderful idea precisely because they're a target for seizure by repressive governments. There's not much chance the Chinese government will permanently keep its hand out of that cookie jar.

So Google would look a lot less evil if they said "We'll have a censored search, but it won't keep logs." I don't know if they'll do that. Maybe they already have - I haven't read the releases carefully. I'd expect it from a company that really made "Don't be evil" a priority even if they compromised it to "Be no more evil than necessary". If Google made that kind of declaration - which would, of course, involve a serious sacrifice of the business reasons they claim to have for keeping the logs, and possibly give someone like me an excuse to say "But then you must admit that you don't need those logs anywhere else either!" - they'd look more like they were really trying hard to do the best thing for Chinese people. That would be something they could do that would really show good faith.

I wonder if all options were adequately explored as far as how heavily censored Google's search results in China must be. Large corporations are notorious for buying exceptions to the law in the USA whenever that's convenient, and hey, you know what? Democratically-elected governments are not the only ones that can be corrupt. I can't believe that Google has no negotiating power at all with the Chinese government. They don't have to just take the censorship law at face value without saying anything about it. They are not powerless in this situation. The threat that "Well, then, we won't participate in your economy!" does hold weight when it comes from somebody like Google. I don't know how much power they actually do have, and I don't know how much of it they may have in fact used. I hope they explored the possibilities.

Now, the "shareholder value" thing has been brought up a lot, and it reflects some important misunderstandings. First of all, I shouldn't have to tell you that I'm no great fan of corporations. Being the apologist for corporate greed doesn't sit easily with me. Nonetheless, the statement "Corporations are required by law to maximise shareholder value (i.e. profits) to the exclusion of ethical considerations" just isn't accurate. It would be more accurate to say, "Corporations are required by law to obey the wishes of a majority of voting shareholders, and there is a presumption (statistically supported by the behaviour of many shareholders in many corporations) that that usually means pursuing profits to the exclusion of ethical considerations."

That doesn't mean the law says they have to do whatever's profitable regardless of anything else. On the contrary, there are some pretty strong laws on the books saying that directors of corporations have to make spectacularly bad business decisions in order for shareholders to be allowed to sue them for not trying hard enough to make a profit. The high-profile shareholder lawsuits you hear about are situations where directors were incredibly criminal on a massive scale; they're not situations where directors decided "Hey, let's not be evil!". Generally, the board of directors has a free hand to decide which business opportunities to pursue or not, even if those decisions are not actually the most profitable decisions imaginable.

Let's consider for instance the Thomas Nelson Corporation. They sell Christian religious literature, and "popular" literature with a religious slant to it. They are publicly traded on the New York Stock Exchange under the symbol TNM. I'm aware of this corporation because I made some play money trading it in the UW Investment Club stock market simulation last year; I might not be so keen on it with real money precisely because of the ethical considerations that people raising the "shareholder value" issue think corporations pay no attention to.

Suppose it could be firmly established that it would be profitable for the Thomas Nelson Corporation to expand their line to include, let's say, religious-themed pornography. (Do I really need to warn you about those links?) I don't think it would be terribly hard to make the business case. Under the "shareholder value" theory, TNM would be required to take that course of action if it would be more profitable than not doing so. Right?

Horsefeathers. The corporation has a very clear policy and mission statement which (I would assume, though I must admit I haven't read it carefully) would forbid such a thing. Furthermore, a lot of TNM shares are almost certainly held by "ethical funds" (for a value of "ethical" determined by their unitholders) whose own policies would require them to vote their shares against any business decision that would involve profiting from pornography. I think there are also some insiders - specific individuals involved in forming and managing the company - with large blocks of shares of their own who would take a similar view, and I'll talk more about insiders in a moment because they're highly relevant in the case of Google.

The shareholders would vote against it, so the corporation wouldn't do it. Profits may be presumed to be the usual desire of the shareholders, but the shareholders' actual wishes override that. When you buy your shares you're supposed to know, and be comfortable with, the kind of business you're buying. Corporations are legally required to provide you with all the details of what you're getting into when you buy shares. In the case of TNM, you're getting into a business that is extremely unlikely to sell pornography no matter how much profit it sacrifices to that goal. The law doesn't require the Thomas Nelson corporation to sell pornography; on the contrary, if the Thomas Nelson corporation started selling pornography absent what would no doubt be one Hell of an entertaining shareholders' meeting directing them to change policies, then they'd be likely to be hit with a shareholder lawsuit for their trouble, no matter how profitable the porn business might turn out to be.

In just the same way, Google isn't absolutely required to go into China, even if that would be profitable; they are only required to go into China if compelled to do so by the wishes of their shareholders, which are presumed to include the general idea of "we'd like to make a profit, and we trust the board of directors' judgment as to what's the best way to do that".

So who are those shareholders that Google is answerable to? Well, they aren't who probably you think. Google is a large publicly traded company (it's listed on the New York Stock Exchange under the symbol GOOG) and generally, large public companies tend to be owned mostly by funds and other large companies and extremely conservative rich people and, in general, evil interests who want nothing but profit.

When you direct your broker to plunk down US$433.49 (last I checked) on the NYSE to buy a share of GOOG, you become one of those interests: you become the beneficial owner of one share of Class A Common Stock in Google, Inc., and that entitles you to one vote at any shareholders' meeting, and one equal share of any dividends the company pays, and one equal share of its assets upon dissolution after paying off the creditors, and so on. It can be assumed that most of the people who buy Class A Common Stock are looking for profit above all else.

But I just said "Class A Common Stock", and if you're as sharp as you ought to be, you should have recognized the implications of that phrase. Referring to "Class A Common Stock" implies that there might be other classes besides "Class A". In fact, there is one other class, called "Class B Common Stock". Class B Common Stock of Google, Inc., is the good stuff. It's what you actually want, but you can't have any, certainly not for a measly US$433.49 per share. You can't buy it on the NYSE. In theory, someone who had some could sell it privately, but they're not going to; in practice, it's not for sale at all.

One share of Class B Common Stock is defined to be almost exactly the same as one share of Class A Common Stock, and for most purposes (for example, for payment of dividends) it counts the same as Class A Common Stock. But it has two additional "rights" (I would prefer to call them privileges): special voting and conversion. Each share of Class B Common Stock entitles you to not one but ten votes at any shareholders' meeting; and if you have a share of Class B Common Stock, you may whenever you like opt to "convert" it, which irrevocably changes it into a share of Class A Common Stock. Why would you want to do that? Easy: so you can sell it without admitting the buyer to the Class B club.

This kind of corporate structure should sound rather sneaky and offensive if you don't know much about business, but it's quite ordinary in the marketplace and serious businesspeople don't think there's anything all that strange about it. Lots of corporations are structured in more or less the same way. Some, like Bombardier, even have automatic conversion rules that effectively limit the special voting stock to members of a particular family regardless of sales. The special voting stock automatically turns into a pumpkin if it's sold outside the family.

The general purpose is to allow the corporation to finance itself by selling stock, while allowing a small elite to retain control of the important decisions. As long as there's less than ten times as much Class A stock out there as there is Class B stock, the holders of Class B stock can override the decisions of the holders of Class A stock; and holders of Class B stock can sell a lot of their own stock while still keeping membership in the club limited, as long as they convert their stock before selling it. It's one of several reasons I wouldn't be so eager to buy Class A Common Stock in Google (it confers less power than what you'd normally expect a share of stock to confer), but that's beyond the scope.

How much damage does Google's capital structure do to the "shareholder value means Google must operate under Chinese censorship" theory? A whole lot, it turns out. On the EDGAR Web site operated by the US Securities and Exchange Commission, you can find an interesting document called the PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, or "FORM DEF 14A", for Google, Inc. That version is the one from 8 April 2005, which is the most recent one. I'd like to direct your attention to the section called COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. They're big on the all-caps titles at the SEC.

There are some subtleties involved in deciding which shares count as existing because of stock options and so on, and there are more subtleties involved in deciding exactly who owns certain shares that are in trusts and so on, and there have been some sales and some shares have been created and so on since the date of that document. All these points are explained at incredible length in the linked document and various other SEC filings; if you're in a position to understand and care about them, then you probably already know how to look up the details. For our purposes, the numbers straight out of that linked section are close enough; the important relationships among the numbers have not changed.

The important numbers are: 162,550,115 shares of Class A Common Stock and 114,732,822 shares of Class B Common Stock outstanding as of 28 March, 2005. Also, 36,479,785 shares of Class B Common Stock owned by Larry Page and 36,376,435 shares of Class B Common Stock owned by Sergey Brin; neither of whom owned any Class A Common Stock. Do the math: 162,550,115 plus ten times 114,732,822 makes 1,309,878,335 potential votes. Ten times the sum of 36,479,785 and 36,376,435 makes 728,562,200 votes for Larry and Sergey. Then 728,562,200 divided by 1,309,878,335 times 100% makes 55.6%, which is a majority.

Larry and Sergey together can override all other shareholders. The company was designed from the ground up to allow them to retain that capability as long as they want to, and they have indicated by their public statements that they intend to keep it for the forseeable future. Either of them could make many millions of dollars personally selling stock, and/or the company could make many millions of dollars issuing new stock, without upsetting their absolute authority.

So the bottom line on shareholder value is that yes, Google, Inc.<> has a responsibility to its shareholders. But that responsibility isn't to make money, it's to follow the wishes of the shareholders which are only presumed to include "make as much money as possible" and can be something else if the shareholders say so. Furthermore, the shareholders who matter, to whom Google is responsible, are basically Larry and Sergey, not anyone else as long as they cooperate with each other to keep it that way; and the board of directors has a lot of freedom in how to implement the wishes of Larry and Sergey.

If Larry and Sergey say "we go into China", then Google goes into China. If Larry and Sergey say "we don't go into China", then Google doesn't go into China. If Larry and Sergey say "Don't be evil" then the board of directors gets to decide whether going into China would be evil, and act accordingly. Larry and Sergey are completely free to make that call based on ethics or anything else. Google isn't forced to go into China just because of some vague notion that the Gnomes of the NYSE want to make a lot of profit regardless of ethics. Google has a choice; or at the very least, Larry and Sergey have a choice. They could take a stand if that were the right thing to do and they wanted to do the right thing.

Suppose Google was trying to make as much profit as possible to the exclusion of ethics. It's not at all clear to me that the decision to operate a censored Web search engine in China is forced by that goal. It's going to cost them a lot of money. They're going to have all the expenses of setting up their data centres, which will be increased because of issues of technology like maybe the electrical power isn't quite as clean and reliable in let's say Shanghai as it is in let's say San Francisco. They're going to have to hire a lot of new staff and that costs money.

There will be unique issues of local culture, like maybe someday someone might drive a yak into a server room for some reason. That kind of thing happens sometimes in China. It doesn't happen very often in California. Dealing with it costs money. Does Google have the organizational competence to handle a yak? I'm reasonably sure that they have never had to do so before. It could be sound business to decide not to take the risk. They've expanded into a lot of other places that are very different from California; but China is arguably unique. It's not instantly obvious that the yak risk is worth it. Risk of yak is not something you can hedge away on any derivatives market I'm aware of.

There will be foreign exchange risk, because the yuan has been going up against the greenback very slowly but also very steadily ever since Beijing relaxed the peg. When the yuan starts going up for real, all US-based businesses that haven't finished expanding into China yet, will be in a world of hurt because they'll be trying to pay cheap US dollars for assets that are priced in expensive yuan. On the other hand, that argument would be in favour of moving into China in some way if Google can do so soon, and can be already earning a profit there when the yuan appreciates.

There will be costs and risks involved in compliance with the Chinese censorship laws. Regulatory compliance is expensive anywhere; and you'd damn well better get it right in China because they kill people for distribution of subversive literature. How much would Google have to pay you to be the person that the Chinese government will hold responsible for Google's compliance with the censorship laws? That's going to run to more than a few yuan right there.

There will be risks at home, too. Google is cool. It's especially popular among a relatively select subset of the North American population who are experts on computers and networking. Google depends on that population both as customers and as employees. If Google stopped being cool, it would be out of business. Some of my friends recently formed the mistaken belief that I was about to go work for Google in the immediate future, and they were congratulating me warmly. I wouldn't expect that reaction to be undivided if they thought I were going to work for let's say Microsoft, because Microsoft is not cool in the way that Google is cool. The people in North America whose goodwill Google depends on, virtually without exception, care very strongly about freedom of expression. The "Don't be evil" slogan isn't just a good idea from an ethical perspective; it is essential to Google's continued success to be seen as not-evil. Google must either put a good freedom-of-expression spin on its operation of a censored search service in China with the nerds back home, or else it must not do it. The potential profits of running the censored search engine pale in comparison to the potential loss if running that search engine lost them their coolness.

Because of all these risks, it's not clear to me that operating a censored search engine in China is really such a great, obviously compelling, profitable business decision. If they didn't do it, I think Larry and Sergey could still stand up in the supposedly probable shareholder lawsuit courtroom and credibly say, "Your Honour, we didn't open a censored search engine in China because the risks involved could easily have cost us more money than we'd expect to make, so it was not clearly in the interest of the shareholders, and we happen to be most of the shareholders ourselves anyway and we're okay with what we did. Also, they're filthy Communists in China." And I'm confident that the judge would tell them, "That's fine, boys; you're free to go." The directors of a multi-billion dollar US corporation are not going to get in serious trouble with a US judge for refusing to do business with the filthy Communists.

I've heard people claiming that this is some kind of new thing: Google used to be non-evil and supportive of freedom of expression and now all of a sudden they're evil and repressing freedom of expression. Well, I don't think it's that simple. Google has been complying with US government censorship for a long time in the shape of DMCA takedown orders. They could have fought a lot harder against the (highly questionable) proposition that a search engine listing can infringe copyright in the way contemplated by the DMCA.

Google have been complying with censorship by social interests that don't even have government backing, in the shape of "SafeSearch", which I'd like to remind you is turned on by default for image searches. SafeSearch is user-controllable, but that doesn't make it censorship-neutral, because there can be cases where people are forced to "choose" to turn it on without actually wanting to. Providing the option at all is an enabler for interests that maybe shouldn't be enabled. It is not possible to argue that Google was legally required to create SafeSearch; at best you could claim that by creating SafeSearch Google may have forestalled the creation of laws that could force them to create something worse.

Google takes a position which some people consider hypocritical on automated querying of Web sites - namely that you aren't supposed to query their Web site in an automated way, even though their own search engine business depends on automatically querying your Web site. I imagine their response to that claim would be that it's all okay because of the robots.txt protocol which lets you exclude your site from their automated querying (and, of course, from their index); but I'm not convinced. Note that Google established its position in the market before robots.txt was in wide use; and now that it has its market position, Google does not negotiate spidering rights on a level playing field with other operators of Web sites.

Then there are the privacy implications of Google's query logging, and Google's long-term persistent cookies. And there's the secrecy of the PageRank formula, through which Google can and does exercise a great deal of power over what the Web will look like. There's the question of whether Google Earth is useful to terrorists or other people who shouldn't have access to satellite information. If you're a far-right libertarian, you could even object that Google's extensive employee benefit packages are somehow immoral on general economic principles! I know people who would. There are plenty of things you could object to about Google's operations and most of them depend very much on your point of view.

My point isn't that Google is evil, necessarily; but I don't think there's any reason to view the creation of a censored search engine in China as being special. If you're going to pick something to be the one thing Google did that meant they had stopped not being evil, I see no reason to pick this particular thing. They might already be evil. They might not be evil yet. It all depends on what you call "evil", which is not a simple question.

And even if you think you know what is good and evil, I'm not sure most Web log authors are in a good position to judge Google. I'm not saying there's anyone who doesn't have a right to an opinion; but I'll listen a lot more to some opinions than others. I saw someone on Slashdot claiming to live in China and to prefer censored Google searches to no Google searches at all. That's only one person's opinion, but (assuming the claim was true) it's an opinion from someone directly affected by the decision. It's pretty important to think about. Then we have the opinions expressed by people like Larry and Sergey - who are affected by this decision to the tune of hundreds of millions of dollars, and who may have employees who could face the death penalty for a regulatory misstep, and who have access to all the information that went into the decision because they made the decision. Those opinions are worth a lot.

My opinion isn't worth quite as much to anyone except me; but at least I've done things like read the SEC filings, so I at least have some information about some of the business considerations. Not all Web log writers have done that. How much is your own opinion worth? How much do you know about the considerations involved in this question? Is your opinion worth as much as it should be? Is your opinion worth as much as you claim?

So, in summary: Google wasn't forced to take this decision at all. They weren't ethically forced to do it to allow Chinese citizens access to the Net because the decision doesn't have all that much impact on that. They weren't legally forced to do it to maximise shareholder value by profiting at any ethical cost, because that's not what maximising shareholder value means, and the shareholders whose values are being maximised are Larry and Sergey anyway, who are free to choose values other than profit. Even if Google were legally forced to maximise profit at any ethical cost, it's not at all clear that that's what this decision would do. There are many other things Google could have done instead; within the framework of this decision, Google has room to make it as non-evil as possible, which they may or may not be doing; and we don't have and probably will never have enough information to really know whether Google made the right decision.

I don't know if Google did right. I do know that my instinctive reaction to this decision is, oh, what a shame. I'd have been more impressed if they had taken a stronger position for freedom of expression. I know that Google has done other things recently that haven't impressed me either. I know I'm not eager to own Class A Common Stock in Google, Inc., and if I had some I'd be inclined to sell it - but that is mostly just because I don't want to be financially exposed to the US stock market at this time at all, and it has little to do with my feelings on Google's business ethics.

If I were offered a job with Google, Inc., I'd give it serious consideration but I'd consider it more likely than not that I'd say "no". That feeling is mostly for personal reasons having to do with where I'd like to live and what kind of life I'd like to have. It has little do with the company's business ethics; and it's how I felt before the recent announcement that they would operate under Chinese censorship; and it hasn't been changed by that announcement. I hope that the Year of the Dog will be a good one for freedom of expression in China and everywhere else, and you bet I'll be taking some positions on that myself in the coming year.

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