Google’s Not Wrong: Restoring the Conscience of the King

The Internet video revolution will hasten the adoption of green and clean technologies.

Established public Internet companies are rapidly discovering compelling business and economic reasons to adopt clean and sustainable technologies. As their consumption of electricity grows, Internet companies look more like traditional manufacturing companies. To address the growing power consumption of its server farms and the increasing cost of electricity, Google has started initiatives to encourage the development and production of clean and sustainable energy to reduce the cost of manufacturing its information products. 

As the web moves into what Cisco calls Web 3.0, where video takes over the Internet and Internet traffic quintuples, as Cisco expects, by 2010, companies like Google will drive adoption of alternative energies and more power-efficient technologies.  

The appearance of a corporate conscience gives Google a competitive advantage. 
Google is of interest for another reason. Google’s “do no evil” approach to doing business puts the company at the vanguard of the corporate governance movement because it gives Google the appearance of having a corporate conscience.  Google is perceived as a great place to work partly due to this policy. As proof, Google has been the best company to work for on Fortune’s annual list for two years running. This perception gives Google a fair competitive advantage because it helps the company attract and retain the best employees, and because its customers and vendors would rather do business with a company that does no evil.

A stronger corporate conscience could give Google an even greater competitive advantage.
Google has made a decent start in restoring a conscience to the corporation. Unfortunately, Google’s policy is expressed in the form of a double negative. The human brain tends to remember “evil”, and forgets the “do no.” 

The perception of Google would be much more positive if the policy were simply “do good.” A simple semantic change from a timid policy of “do no evil” to a more courageous “do good” would raise the standard for corporate behavior around the world, allowing Google to maintain its competitive advantage as a perceived thought leader in corporate governance.

Additional corporate governance mechanisms offer the possibility of far greater, fair competitive advantages. 
Google’s promulgation of a rudimentary form of corporate conscience may be of enormous significance to the global economy, which is dominated by corporations without any formal conscience mechanism. Under the prevailing legal systems of the world, corporations generally lack any express, intentional, enduring internal structure to supply a conscience function other than the basic fiduciary duties owed by directors to shareholders. Neither the corporate law nor traditional charter documents provide any such formal conscience structure. Google could augment its competitive advantage in governance by formally creating an enduring conscience mechanism that is more permanent than a mere policy, which ultimately is subject to the whims of management. 

Restoring a modern version of the corporation’s original conscience could provide companies like Google with another fair, competitive advantage.
All corporations once had a conscience. In Europe during the Middle Ages, absolute monarchs granted life to corporations. A royal patent bestowed a monopoly on the corporate body. Not only did such corporations have all the rights of an individual citizen but they also had the immense power of immortality. As a counterbalance to the power of immortality, the monarch was the conscience of the corporation and ensured that the corporation did not harm the commons. Implicit in the monarch’s powers, was the monarch’s proxy as the fiduciary for the commons. Because the monarch’s powers were derived from God, such conscience, in theory, was the highest form of conscience in the human realm.

With a good monarch, this system worked relatively well. The monarch supplied the corporation’s moral conscience and could revoke the charter if the corporate body misbehaved, or cut off the heads of management. The conscience function also had a succession plan; it would pass with the throne to the next king, thus providing checks and balances against potential abuses of the corporation’s power of immortality. Since the monarch usually invested in these enterprises, the original fiduciary duties of corporate management naturally flowed to the monarch. The original fiduciary duty of management to the monarch was also the nerve that connected the corporation to its conscience.

As European powers spread economic colonialism through corporations like the Dutch East India Co. and the Hudson’s Bay Co., monarchs gave corporations economic dominion similar to the physical dominion given to colonial governors. These corporations were far more agile than colonial governments which dealt with defense and occupied peoples. They were commissioned by the monarchy and answered to the monarchy. The monarchs could intervene in these corporations as they saw fit and applied their moral oversight through the exercise of the royal conscience. Colonial empires spread the corporate form around the globe.

During the Enlightenment in the 18th and 19th centuries, the conscience function of the monarch disappeared. Citizens perceived that European monarchs often poorly served the needs of the commons and that power needed to be shifted to new forms of government. During the Age of Enlightenment, new countries dispensed with monarchs completely, and old countries made monarchs iconic rather than functional. While the monarch’s powers were dissolved and diffused into legislative, judicial, executive and parliamentary bodies, no one noticed that the implicit, external conscience provided by the king to corporations disappeared in the process.  

Google’s “do no evil” policy may signal the dawn of the Age of Corporate Enlightenment.
Since the Enlightenment, all countries have placed various judicial, legislative and administrative limits upon corporate behavior, but none have created a formal kind of conscience mechanism to replace the conscience of the monarch. The lack of a conscience makes corporations vulnerable to sociopathic behavior, including boom and bust cycles, pyramid schemes, monopolies like Standard Oil and financial chicanery like Enron. These behaviors are symptomatic of the fact that corporations, severed from a conscience, ignore the needs of the commons as much as monarchs often did during the era that led to the Age of Enlightenment and Western society. Lacking any express, intentional, internal moral conscience, corporations behave only as well as the morality of their current management. The monarch would consider the welfare of the commons in regulating its corporate subjects and implicitly extended the corporation’s management’s fiduciary duties to the commons. Current corporate directors not only don’t consider the welfare of the commons (for example, the planet, the environment, employees and their communities) but are generally discouraged by law from considering the commons in exercising their fiduciary duties to shareholders.

Instilling a corporate conscience is relatively easy.   
A few sentences of text in corporate bylaws can create an internal, enduring conscience mechanism which endures beyond the terms of current management. GreenPyro, a developer of an advanced pyrolysis furnace, has adopted model bylaws which include an ethical code of conduct, a corporate governance committee of the board to enforce the code of conduct, and a permissive extension of the directors’ fiduciary duties beyond the shareholders to include the commons. These corporate conscience provisions are protected from wanton amendment by super majority vote requirements.   

This week, this columnist learned of another startup, which recently received its first round of funding from two pioneering top-tier venture capital firms, with similar provisions in its charter documents.     

Google has clearly won the first round of this nascent morality contest with its “do no evil” policy. Just imagine what a fair competitive advantage Google would have if it developed a real conscience like GreenPyro’s. If other public companies followed suit, maybe we could all avoid getting over-regulated after the next SOX fiasco and instead enjoy an Age of Corporate Enlightenment.

GreenPyro is a client of Montgomery & Hansen, LLP.  The CEO of GreenPyro, Jerry Scharf contributed a historical perspective to this column.

(c) John Montgomery 2008