For profit charity?
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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There are pressures on any business to produce profits almost from the first day the business is founded.
Start up companies trying to make new technology useful to consumers are under intense pressure to provide investors with immediate profits.
Scientists and engineers trying to use new technologies to build new products under severe time constraints often fail to provide investors with these profits, so the business fails and the innovative work of the engineers and scientists grinds to a halt.
For instance, MPEG-3 players like Apple's iPod have been around for many years. They didn't become profitable until Apple created a player with a lightweight smart design and a music download service to make it easy to get music.
Google's new for-profit charity idea might be able to relieve some of this pressure to immediately make a profit and leave scientists enough room to come up with a fuel efficient car that reduces our reliance and dependence on oil.
If this idea works, it could make history the way that Google search has made history.
Today's article explores the details of Google's for-profit charity idea.
Some economists like Paul Romer at Stanford near Google in the United States, argue that for-profit companies should take over scientific research projects at universities, turn them into for-profit products, and then patent the idea to lock-in ownership of the idea.
Google.org's idea actually fosters university-like scientific research projects in a for-profit corporate setting. In this respect, Google's idea, if successful, could lead to different patterns of innovation and research and development in corporate America.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What problems will the charitable foundation that Google is setting up work on?
2. How will the for-profit status of Google's foundation make it different from foundations with a non-profit status?
3. What is the name of Google's new charitable foundation?
4. How many different kinds of fuel will Google.org's fuel efficient car use?
5. Besides Google.org who else will be involved in the fuel efficient car project?
6. How fuel efficient will Google.org's be?
7. Will the amount of tax that Google.org pays be made public?
8. How do Google's founders believe that for-profit status will help charities do their work better?
9. According to the first director of Google.org Dr. Larry Brilliant, what benefits will for-profit status provide?
10. What will the most important goal of Google.org be? Making a profit?
11. What do skeptics say might happen to any profits Google.org might make?
12. How much money has Google given to the Google Foundation?
13. Can the Google Foundation spend its endowment any way it wishes?
14. Is the Google Foundation the only part of Google.org? (note: inference required)
15. When was the Google.org philanthropy idea announced?
16. What percentage of Google's stock and profits are being pledged to this charity?
17. What was the initial time frame for disbursing the charitable funds? How has the timeframe changed and why?
18. How could Google.org ventures gain a competitive edge over traditional business projects?
Bangkok Post Article - September 15, 2006
Google's philanthropy takes different tack
By KATIE HAFNERSan Francisco - The ambitious founders of Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming.
But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists, and even lobby Congress. It will also pay taxes.
One of its maiden projects is bound to get attention. According to people briefed on the programme, the organisation, called Google.org, is aiming to develop an extremely fuel-efficient, plug-in hybrid car engine that runs on ethanol, electricity and gasoline.
The philanthropy is consulting with hybrid engine scientists and car manufacturers, and has arranged for the purchase of a small fleet of cars with plans to convert the engines so that their gas mileage exceeds 100 miles per gallon. The goal: reduce dependence on oil while alleviating the effects of global warming.
By choosing for-profit status, Google must pay taxes on any corporate profits that go into the organisation, as well as on the proceeds of Google stock sales to finance the philanthropy's projects.
Any resulting venture that shows a profit will also have to pay taxes. Shareholders may not like the fact that Google.org's tax forms will not be made public, but kept private as part of the tax filings of the parent, Google Inc.
Google's founders, Larry Page and Sergey Brin, believe for-profit status will greatly increase their philanthropy's range and flexibility. It could, for example, form a company to sell the converted cars, fund that company in partnership with venture capitalists, and even hire a lobbyist to pressure Congress to pass legislation granting a tax credit to consumers who buy the cars.
The executive director Page and Brin have hired, Dr Larry Brilliant, is every bit as iconoclastic as Google's philanthropic arm. Mr Brilliant, a 61-year-old physician and public health expert, has studied under a Hindu guru in a monastery at the foothills of the Himalayas and worked as a Silicon Valley entrepreneur.
In another project, one that Mr Brilliant brought with him to the job, Google.org will try to develop a system to detect disease outbreaks early.
Mr Brilliant likens the traditional structure of corporate foundations to a musician confined to playing only the high register on a piano. "Google.org can play on the entire keyboard,'' Mr Brilliant said. "It can start companies, build industries, pay consultants, lobby, give money to individuals and make a profit.''
While declining to comment on the car project specifically, Mr Brilliant said he would hope to see such ventures make a profit. "But if they didn't, we wouldn't care,'' he said. "We're not doing it for the profit. And if we didn't get our capital back, so what? The emphasis is on social returns, not economic returns.''
There are sceptics, too, among tax lawyers and other pragmatists familiar with the world of philanthropy. They wonder whether Google's directors might be tempted to take back some of the largess in an economic downturn.
The only conventional part of Google.org is the Google Foundation, a non-profit with an endowment of $90 million that is constrained in how it spends its money under the 501(c)(3) section of the Internal Revenue code.
Google's big philanthropic experiment lies in the part of Google.org where the lion's share of the funding now resides. This part of Google.org will be fully taxable, with the ability to invest in a full spectrum of programmes and companies.
All of Google.org's spending, said Mr Brilliant, will be in keeping with its mission, and there is to be no "blow back''. That is, should Google.org make a profit with one of its ventures, those funds will not go to the search engine business, but will stay within Google.org.
Google had existed for only six years, when, in advance of the company's initial public offering in August 2004, Mr Page and Mr Brin told potential investors that they planned to set aside 1% of the company's stock and an equal percentage of profits for philanthropy. By the end of 2004, Google.org had been formed.
The company has said it plans to spend the money over the next 20 years, and the Google board recently approved a more rapid disbursement rate, $175 million over the next two years.
"Poor people can't wait,'' said Mr Brilliant. "Dying people can't wait for some 20-year plan. It's not what we're doing here.''
Ventures that grow out of Google.org could be seen to have a competitive edge because they do not need to show a financial profit. But financial returns from a project like the high-mileage car are not necessarily the aim.
"I think how you count profit is the issue here,'' said Peter Hero, president of Community Foundation of Silicon Valley, a charitable foundation with about $1 billion in assets.
"Google.org is measuring return on cleaner air and quality of life. Their bottom line isn't just financial. It's environmental and social.'' NYT
Vocabulary (in discussion above)
ambitious - strong desire to succeed
philanthropy - charity
mandate - authority to do something (given by someone)
maiden projects - the first projects (to test out an idea)
briefed - given information about (given an overview)
hybrid - combining two or more things (for example a car fueled by gasoline and ethanol)
alleviating - reducing a problem
philanthropy - charity, giving money to people who need it
for-profit status - a normal business that operates to make a profit for its owners
venture - a project or business that is new, exciting, and risky
capitalism - when companies that produce goods and services in a country (the "means of production") are mostly privately owned by individuals and other companies and not by the government
(under socialism the means of production are largely publicly owned by the government)
capitalists - a person who invests capital in a business, especially a large business (note: this word is often negatively)
lobbyist - people who try to influence government policy on behalf of another company or organisation (for example the cigarette company had a lobby at parliament to prevent anti-smoking legislation)
iconoclastic - ideas or way of doing things very different from normal
guru - expert, teacher, someone skilled with computers (from the Indian word for teacher)
corporate foundations - organisations that manage the money corporations contribute to charities and NGOs
Internal Revenue Code - the tax laws of the United States
the lion's share - most of, the majority of (a share that is not 100% but definitely more than 50%)
full spectrum - every possible kind or type of (a spectrum lines different kinds of things up in a line based on some attribute, for example cost with the cheapest on the left and the most expensive on the far right)
mission - the reasons why an organisation exists, its "reason for being" and what it hopes to achieve, "helps explain the distinctiveness of an institution and represents assumptions and purposes
that guide its planning and activities" (Source)
in keeping with its mission - acting only according to the original purpose of the organisation, not deviating or stray from its original purpose
initial public offering (IPO) - the first sale of a corporation's common shares to public investors (See Wikipedia)
disbursement - money given out (formal)
ventures - business projects (uisually implies that they are risky and a little experimental)
a competitive edge - something that helps a business compete better (for example their location in the middle of the market gave them a competitive edge over their competitors who were located outside of the market)
Answer Key:
1. What problems will the charitable foundation that Google is setting up work on?
Poverty, disease, and global warming.
2. How will the for-profit status of Google's foundation make it different from foundations with a non-profit status?
It will have to pay taxes, but it will be able to fund start-up companies, lobby congress, and work more closely with venture capitalists.
3. What is the name of Google's new charitable foundation?
Google.org
4. How many different kinds of fuel will Google.org's fuel efficient car use?
The car will run on three different kinds of fuel: ethanol, electricity and gasoline.
5. Besides Google.org who else will be involved in the fuel efficient car project?
"Hybrid engine scientists" and car manufacturers will be involved in the project.
6. How fuel efficient will Google.org's be?
They hope to build a car with gas mileage that "exceeds 100 miles per gallon."
7. Will the amount of tax that Google.org pays be made public?
No, it will be "kept private as part of the tax filings of the parent, Google, Inc."
8. How do Google's founders believe that for-profit status will help charities do their work better?
For-profit status will increase the charity's "range and flexibility." It will be able to lobby congress for "tax credits" to those who buy the experimental car. It will also be able to work with venture capitalists who can provide further funding. Apparently, there are currently laws that prevent non-profits from doing this.
9. According to the first director of Google.org Dr. Larry Brilliant, what benefits will for-profit status provide?
Google.org will be able to "start companies, build industries, pay consultants, lobby, give money to individuals and make a profit."
10. What will the most important goal of Google.org be? Making a profit?
No, making a profit will not be the most important goal. Google.org will emphasize social returns and not econmomic returns. It will measure its return in "cleaner air and quality of life." The return will be "environmental and social."
11. What do skeptics say might happen to any profits Google.org might make?
Skeptics claim that Google may be tempted to take back some of the money that it gave Google.org during an economic downturn when it lacks cash. ("blowback")
12. How much money has Google given to the Google Foundation?
$90 million.
13. Can the Google Foundation spend its endowment any way it wishes?
No, as a charitable donation it is restricted by the American tax code ("Internal Revenue Code").
14. Is the Google Foundation the only part of Google.org? (note: inference required)
No, the Google Foundation apparently has a tax exemption, but there is a separate for profit and fully taxable part of Google.org. ("Google's big philanthropic experiment lies in the part of Google.org where the lion's share of the funding now resides. This part of Google.org will be fully taxable, with the ability to invest in a full spectrum of programmes and companies.")
15. When was the Google.org philanthropy idea announced?
Before Google's IPO in August, 2004.
16. What percentage of Google's stock and profits are being pledged to this charity?
1% of the stock and 1% of the progits.
17. What was the initial time frame for disbursing the charitable funds? How has the timeframe changed and why?
The initial timeframe was to release the funds over a 20 year period. Google's board of director's later decided to release the funds more quickly because "Dying people can't wait for some 20 year plan."
18. How could Google.org ventures gain a competitive edge over traditional business projects?
There won't be a pressure to show a profit which might them allow to do some things and take some risks that they normally couldn't if they were a business.
