Philanthropy the Google way: Doing good while making money

SAN 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 fight 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 program, the organization, 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, or about 42 kilometers per liter. The goal: to reduce dependence on oil while alleviating the effects of global warming. Google.org is drawing skepticism for both its structure and its ambitions. It is a slingshot compared with the artillery of charities established by older captains of industry. Its funding pales next to the tens of billions of dollars that the Bill and Melinda Gates Foundation will have at its disposal, especially with the coming infusion of about $3 billion a year from Warren Buffett, the founder of Berkshire Hathaway. But Google's philanthropic work is coming early in the company's lifetime. Microsoft was 25 years old before Bill Gates set up his foundation, which is a tax-exempt organization and separate from Microsoft. By choosing for-profit status, Google must pay taxes on any corporate profit that goes into the organization, 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 the tax forms of Google.org 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 that 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 people who buy the cars. The executive director that Page and Brin have hired, Dr. Larry Brilliant, is every bit as iconoclastic as Google's philanthropic arm. 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 Brilliant brought with him to the job, Google.org will try to develop a system to detect disease outbreaks early. 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," Brilliant said in an interview. "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, 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 skeptics, too, among tax lawyers and other pragmatists familiar with the world of philanthropy. They wonder whether Google directors might be tempted to take back some of the largess in an economic downturn. And there is the question of how many of the planet's problems can truly be addressed by a single corporate entity. "Those Google guys are young kids," said Owens. "It's a big world out there. Certainly the goals they've set out are laudable ones, but there are bound to be bumps along the way." But even while expressing reservations about Google's approach, Owens said that the structure of Google.org "eliminates all the constraints that might otherwise apply." The only conventional part of Google.org is the nonprofit Google Foundation, which has an endowment of $90 million but is constrained in how it spends its money under section 501(c)(3) 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 programs and companies. All of Google.org's spending, said Brilliant, will be in keeping with its mission, and there is to be no "blowback." 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, Page and Brin told potential investors that they planned to set aside 1 percent of the company's stock and an equal percentage of profit 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 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."