Thursday, March 09, 2006

Google This, Sucka

What is the obligation of a public company?

(For the corporately impaired, a public company is one which sells partial ownership to outside shareholders, usually in the form of stock shares).

Is it:
a) To make lots of money
b) To make customers happy
c) To keep Wall Street Analysts fully informed of their plans and projections
d) To keep shareholders fully informed of their plans and projections
e) To deliver information required by law, and to equally inform the public at large (including shareholders, analysts, and potential shareholders) what information they plan to make public, then deliver on that promise.
f) All of the above.

The answer isn't (f).

Contrary to the opinion of investors, Wall Street, and reporters, the correct answer is (e).

A recent article in the London Times reports that Wall Street analysts are saying that it is time Google "step into line with the majority of US listed companies and begin publishing earnings guidance," theoretically in the interest of reducing share price volatility.

Google, as clearly published in their original SEC filing to go public, has always stated that they would not provide the usual earnings guidance to analysts that is routinely provided by other public companies. In the "normal" course of affairs, company CEO and CFOs routinely hold analyst calls and meetings prior to publishing SEC quarterly results where they provide "guidance" as to where they think their earnings will come out at the end of each quarter. These analysts then make a living by passing this information along to their clients, who pay them for this information.

Google decided that they would make any public information truly public, available to everyone at the same time, and let shareholders and potential buyers do their own homework, make their own assessments, as to whether or not to buy or sell shares at a certain price. (Theoretically, all public companies must make "public" information available to anyone who asks, but there is a long time complex relationship with bankers/analysts that create information intermediary niches that have been profitable for Wall Street - and many CEOs).

Google actually makes quite a bit of information available, from the classic analyst presentations and SEC filings, to a number of Google Blogs saying what's going on inside GOOG.

But what Google doesn't do (and what pisses off Wall Street) is share "special" information with analysts regarding precisely where their earnings will fall on a quarterly basis.

I'm sure the senior team at Google has their reasons. Having worked for both private and public companies (and private companies that went public), I can categorically say that the quarterly pressure of Wall Street drives dramatically different decision making regarding strategy, timing, and internal investment for a company. Adding to this is the typically compensation structure for top executives which is heavily weighted toward strong growth in stock price. When there is no counter pressure to Wall Street, you get Enron.

Google is trying hard not to be another Enron.

Unless you work on Wall Street, this falls into the "Good" category (vs. the "Evil" category, which is captured in the oft quoted Google motto "Don't Be Evil.")

So...back to the quiz that opened this post.

a) There are times where it makes more sense for long term viability to invest in new technologies, infrastructure, and acquistions, rather than take more to the bottom line. This is good for a company, but most public companies have a very difficult time doing this without getting punished by Wall Street (because it affects a quarter).

b) This is certainly a good idea, but isn't necessarily an obligation of a public company. Witness all the public companies you know that piss you off.

c) Most companies like to keep Wall Street on the inside track - this does help to a degree with promoting new share offerings, getting more exposure, and has other benefits. But is absolutely is not an obligation, and a strong case can be made that this is much akin to the politician/lobbyist relationship - a double edged sword that can cut off your head (either one) if not careful.

d) Keeping the public fully informed of plans and projections also means keeping your competitors fully informed of same. Not always a great idea.

e) Say what you're going to do, then do it. To do anything else makes a company unpredictable, and this is the sin of a public company. You don't have to say *everything* (see (d)), but you do need to provide enough information for potential shareholders to decide if they want to buy into your gig. It's up to the buyer to decide if they like what they hear or not.

Message to shareholders - if you don't like it, don't buy.

Message to Wall Street - Google This, Suckas

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