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Mar 29 2009

Tom’s Report Card: Google gets a C- on its Philanthropic Promises

Published by at 10:31 am under Networked theory of goodness,Uplift

Updated: Mar 30 to use stockholders equity instead of Market Cap as the baseline for their 1% equity contribution, improving their grade from D- to C-.  my mistake.

I’ve researched Google Foundation’s history, as near as I can gather from public documents.   This is not a simple task, and I might well be wrong (and am very happy to be corrected.)  However, it seems to me that Google is significantly in arrears in the follow through to their promises of 2004.

Google has made a single contribution of $90 million in 2005 to its foundation.  Shareholder equity in 2005 was $9,418,957, so this met their 1% promise. Since then, their stockholder equity has increased to $28,238,862, 1% of which would indicate a total of a $282 million contribution.

Google.org states that it has committed $100 million to grants and investments.  However, 1% of their earnings amounts to $141 million, and required disbursements from their foundation amount to $15 million, bringing their promised amount to $156 million. If we deduct non-charitable use investments from their $100 million commitments to date, we end up with only 40% of their total promised contributions.

I respect the many philanthropic and better world investments that Google has made, but it has also made a promise to the public and its investors that I think needs to be carefully documented and reviewed.

I stand ready to be corrected in summaries, but until then, I have to issue Google.org a C- in their performance to date in meeting their original promises.  Below are my detailed calculations.

Below is a summary of Google’s contribution to the foundation ($90m in 2005), charitable distributions from foundation ($14m over 5 years) gleaned from their IRS 990 forms.  I also researched their annual earnings and and shareholder equity over the same period ($14.1 billion) from their annual reports.

Recall that Google announced in their SEC public offering filing with the SEC:

We are in the process of establishing the Google Foundation. We intend to contribute significant resources to the foundation, including employee time and approximately 1% of Google’s equity and profits in some form. We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world’s problems.

And here is departing head of the Google Foundation Larry Brilliant’s 2009 comments on progress to date:

In this global economic crisis, the work Google.org is doing, together with our many colleagues around the world, to help develop cheap clean energy, find and fight disease outbreaks before they sweep the globe, and build information platforms for underserved people globally, is more important than ever. We stand behind the commitment made in 2004 to devote 1% of Google’s equity and profits to philanthropy, and we will continue to iterate on our philanthropic model to make sure our resources have the greatest possible impact for good.

Now that we have 5 years of reality after the 2004 promise, does it look like Google is living up to its promises to investors and the public?  After all, this 1% annual dividend and equity distribution were factored into the price investors paid for the stock, and the IRS has some pretty strict rules about charitable contributions and funding.

How is Google doing on its 1% Equity Contribution?

According to its IRS filings for the foundation, Google made a single contribution of $90 million to the foundation in 2005.  Based on a stockholders equity of $9,418,957 in 2005, this is roughly the amount they promised.  Their equity has since risen to (2008 tax filings are not yet available; these numbers only include 2004-2007)  Currently, their stockholders’ equity is $28,238,862, 1% of which would indicate a total of a $282 million contribution.

Conclusion:

In 2005, Google made good on its original promise to contribute 1% of its equity.  It is unclear how it will handle this amount as its equity changes.  (up or down)

How is Google doing on its 1% Profits Contribution?

According to its annual reports, Google accumulated $14.1 billion in net earnings 2004-2008.  1% of this number equates to $141 million.  Google.org states that Google has comitted over $100 million in grants and investments. An investment, as wise and “better world” oriented as many investments can be, is not a philanthropic contribution.  Google has $15 billion in cash to make investments with.  A 501(c)3 foundation is different, and sees many of the investments that Google is listing as “noncharitable-use assets. ” To add up charitable giving with non-charitable use assets (which they differentiate properly on their tax returns) seems to confound the issue.   A quick scan of this list seems to show that only about $60 million of Google.org’s committments would be classified as “charitable.” Their IRS filings for the foundation show only $14 million, so contributions made by the company outside the foundation are hard to track.

Their original 1% of profits (earnings) promise should have yielded $141 million to date.  It would appear that they have only made about $60 million of IRS qualifiable charitable contributions.  The New York Times reported in 2006 that the Google board was increasing its annual payout to $175 million per year, an amount consistent with their 1% promise.  This would have lead to $525 million in disbursements to date.  However, in 2009, outgoing Google.org director touts that they have only made $100 million.

Conclusion:

The foundation’s required 5% annual distribution of their $90 million foundation funds adds another $15 million to the expected contributions to date for a total of $156 million to date. From the published information, it appears that only about $60 million to date have been committed.  If we accept the existing investments in their foundation as appropriate, then this puts them about $96 million in arrears, having made only 40% of their promised distributions.

Disclaimer:

I may be wrong.  I may not have found all the data and reports they have issued.  I have made assumptions about profits and equity that may not be appropriate, and I don’t have access to their 2008 tax filings.  I have heard people give credit to Google’s contributions that I don’t see listed in their list of contributions.  Google may simple be doing so much that they can’t keep track of it all.

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Contributions Distributions Net Income ($millions) Shares Price Shareholder Equity ($thousands)

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2004 $640,192 272781 $193 2,929,056

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2005 $90,000,000 $5,700,000 $2,017,278 291781 $296 9,418,957

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2006 $1,996,351 $3,077,446 309548 $487 17,039,840

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2007 $6,910,000 $4,203,720 316210 $657 22,689,679

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2008 $4,226,858 317514 $321 28,238,862

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Total $90,000,000 $14,606,351 $14,165,494

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