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The gifts of Google

September 23, 2006

GOOGLE HAS BEEN A POINTEDLY unconventional company, with quirks that include a decidedly anti-corporate corporate motto ("Don't be evil"), a power-sharing triumvirate instead of a single leader and a global infrastructure built on off-the-shelf hardware and free software. So it's only natural that the company

would take a novel approach to philanthropy. And like many things Google has done, its strategy may prompt other large corporations to change the way they do charity.

Many companies support local charities. Some create foundations to help raise money for pet causes. What Google is doing, though, is treating philanthropy more like an investment than a write-off, providing substantial amounts of its operating cash to entrepreneurs and nonprofits that take on some of the world's biggest social ills -- particularly if they pursue market-based solutions.

Before it sold its first shares of stock, Google alerted investors that it planned to dedicate 1% of its equity and profit to a new Google foundation. One percent of its equity translates to roughly 3 million shares of stock, which was worth about $300 million when Google went public. These days, the shares are worth about $1.2 billion.

Google isn't handing over the shares to a foundation, which would make the donation tax deductible and shield any increase in its value from taxes. Instead, it plans to dole out the cash equivalent of those shares over 20 years, with the money coming straight out of Google's bottom line. The better Google's stock performs, the more cash the company will give away. Much of it will support entrepreneurs active in global poverty and disease eradication and new energy technologies. Any returns on those investments will be plowed back into philanthropy, Google says.

Similarly, the company plans to keep its commitment to donate a percentage of its profits by giving cash straight from the corporate till. It started by putting $90 million into the Google Foundation, a traditional, corporate-sponsored nonprofit. But it pledged to give almost twice as much -- $175 million by the end of 2008 -- to other groups in the form of grants and investments.

Google's approach is similar to the results-oriented efforts of the Bill & Melinda Gates Foundation. And by giving the money directly, Google doesn't have to worry about the restrictions placed on corporate foundations, whose generosity cannot create incidental benefits for their funders. That kind of restriction would prevent the Google Foundation from giving money to a project such as One Laptop Per Child, whose distribution of low-cost computers could be seen as helping expand Google's audience. The company gave $2 million to the project directly.

As ethics guru Michael Josephson said, Google's 1% pledge "is unusually large, because normally it's nothing." And shareholders can't gripe about the company's nondeductible generosity because, after all, they were forewarned.

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