Google's resistance and corporate social responsibility

Geoffrey Manne —  21 January 2006

google/csrThe government subpoenas Google’s records, and also Yahoo!’s and Microsoft’s. MSFT and YHOO cave: Their stocks are down a little over and a little under 2%, respectively. Google resists. Its stock drops almost 9%. And yet a headline for an article by MSNBC’s chief economics correspondent–with the relevant stock prices immediately alongside–notes, “Google stand could be good for business.” Maybe he’s talking about Microsoft’s business?

The article quotes Dan Solove who has thoughts about the matter here, here and here. Solove and others view Google’s resistance as primarily a matter of principle, but I bet Google is quick to claim that it is (or at least “will be eventually. Really. We promise”) good for the bottom line. And perhaps here principle and profit coincide: That principle in this case seems to require resisting government interference in markets is a good indication that this might be true. But what if the two remain divergent?

Think about how Google’s actions square with one or more of these claims, Tyler Cowen’s attempted distillation of Milton Friedman’s thoughts on Corporate Social Responsibility:

1. Profit maximization is the best rule available, even though it fails society in particular instances (in that case, isn’t there some slightly more convoluted rule that can cover at least some of these situations and modify the outcomes? If only “very simple” rules are allowed, why?)

2. Businesses have no responsibility to behave in an act utilitarian fashion. Rules are rules, and we should follow them, come what may.

3. Following the doctrine of fiduciary responsibility — in this case to shareholders — is the greatest social good in these situations. It outweighs potential act utilitarian considerations pointing in other directions.

4. Force and fraud aside, profit maximization always coincides with the social good, at least in the absence of bad government interventions.

5. It is a public choice argument. The claim is a noble lie, for otherwise business will be regulated by government in a counterproductive manner.

6. So much anti-corporate nonsense has been written, so we need to shock people with an extreme claim in the opposite direction.

Defenders of Google’s actions on principle will point to the caveat in #4 and will deny especially #2 and #3.

I would like to rest my defense of profit maximization on #4, but as a descriptive matter, I think the exception is in serious danger of subsuming the rule. I suppose that leaves me with #3, which looks to me like a slightly weaker version of #4. (And Steve Bainbridge has mounted a compelling justification of #1 and #2).

Either way, I’ve said it before and I’ll say it again: Google does not have a duty here to saddle its shareholders with the cost of saving the world from itself. Although if I knew its leaders believed in any of the claims above, I’d give them the benefit of the doubt.

Geoffrey Manne

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6 responses to Google's resistance and corporate social responsibility

  1. 

    “my beef is with those who see a moral imperative here. Google has no obligation to resist stupid government actions at its shareholders’ expense.”

    I entirely agree. My only point here is that a short-term decline in share price is not proof that such resistance is indeed contrary to its shareholders’ interests.

  2. 
    Michael Guttentag 22 January 2006 at 9:45 pm

    Notwithstanding your causal empiricism, I think you raise a valid and interesting issue here.

  3. 

    I don’t doubt that resistance might be in shareholders’ interest — see, e.g., Larry’s post here (http://busmovie.typepad.com/ideoblog/2006/01/google_corporat.html). And I would concede that defense of Google’s brand might support resistance here, even if its product weren’t actually affected. And with respect to drawing inferences from share price changes, although I think the casual empiricism here is warranted, caution is also warranted, as Mike Guttentag suggests in response to Larry’s post (the one I just linked).

    But my beef is with those who see a moral imperative here. Google has no obligation to resist stupid government actions at its shareholders’ expense. Social welfare — even on the internet — will be served by businesses acting like businesses, not law professors (see #3 and #4 above).

    And yet, I hasten to add, there are many in the blogessoriate (is there any word that can’t be combined with “blog” to great effect?) who seem to seek at every opportunity to tar the participants in the “new economy” with obligations of precisely this sort, as if internet businesses are uniquely responsible for maintaining someone else’s vision of a utopian cyber world. I think that’s a mistake. And maybe the collective wisdom of Google’s shareholders does, too.

  4. 

    Could it be that the move is, in the long run, better for the bottom line, and that Google is in fact looking out for its shareholders? There’s certainly an argument that a service that protects its users’ privacy from unjustified government searches will garner more use, and thus more advertising revenue, which will eventually be reflected in the market price of shares.

    At any rate, I think Google’s management is entitled to the benefit of the (business judgment rule) doubt. I know -I’m- more likely to search on it than Yahoo or MSN (not simply because of this, but the move certainly reinforces the fact that I’ve been consistently making the right choice).

  5. 

    Your discussion assumes that a firm’s share price accurately reflects the long-term effect of Google’s resistance on Google’s profitability. Perhaps it does. Or, perhaps Google’s management, in possession (as they are) of non-public information, have concluded that the firm’s resistance will have no, or even a long term positive, effect on Google’s profitability.

    A Company’s management makes a decision that it believes is correct. The market disagrees and reacts reacts by selling of the firm’s stock. It happens all the time and sometimes, it turns out, that management was right and the market was wrong.

Trackbacks and Pingbacks:

  1. Ideoblog - January 21, 2006

    Google, corporate social responsibility, and reputation…

    On Google’s resistance to a government subpoena of its records, Dan Solove applauds Google’s action on principle. Geoff Manne says Google does not have a duty here to saddle its shareholders with the cost of saving the world from itself….