Academic

Google is abandoning its China-based search engine--this despite China being the world's largest internet market, with huge growth potential.  Why?  

Thesis one: corporate social responsibility.  Forget recycling more or reducing your carbon footprints--small potatoes.  Facilitating government surveillance of dissidents sounds downright evil. (The catalyst for Google's policy change was a cyberattack originating with the Chinese government that targeted human rights activists emails.)  As Larry Ribstein notes: "When Google went public it promised investors that it is not "evil" or "conventional" and will "make the world a better place." Larry calls this Google selling corporate social responsibility, and concludes (quite rightly, I think), that a China pull-out can be viewed as a good business decision, as well as the ethical choice.  Larry quotes a WSJ article:

Heavily reliant on consumer trust given its vast store of personal information, Google needs to show it guards the data jealously and uses it judiciously. Meanwhile, pushing for the free dissemination of information everywhere is hard to square with accepting ever greater curbs and interference in China.

Thesis two: Corporate identity.  Identity is important to Google, and maintaining a presence in a censoring China is antithetical to that identity.  This notion is part of a larger idea I've been working on, mostly in the nonprofit space, that an organization's form can create a specific kind of identity.  Usually for-profit public corporations don't create an identity for their shareholders, but some can.  Google, with its unofficial "Don't Be Evil" motto, is one of them.   

Vic Fleischer has a great case study on the branding effects of Google's IPO, a deal structure that helped reinforce its image as "innovative, egalitarian, playful, and trustworthy."  My concept of identity is like branding, but is more inward looking.  In other words, CSR and branding are about the face a corporation shows to the outside world; identity is about how it fundamentally sees itself.  A friend at Google tells me that when free Google T-shirts or caps are on offer at the company, no one takes more than one "because it's not the Google way." 

Google's ownership structure offers a clue as to why identity might matter so much to this particular organization.  By all accounts the risky move to pull out of China resulted from co-founder Sergey Brin's lobbying.  A Russian immigrant, Brin saw in China's actions evidence of totalitarianism that was  "personally quite  troubling."   Resisting government oppression appears to be a large part of Brin's identity--and Brin controls almost 30% of Google's votes.  Most public companies aren't still dominated by founders, but when they are, I suspect that corporate identity matters more. 

Which raises the question: if Brin's personal politics is driving the decision to pull out of China, and it turns out to be a disastrous mistake to exit the Chinese market, do shareholders have a cause of action against Google? 

(Answer: no.)