Google.org: charity or profitable business?

Summary:The New York Times has an article describing Google's charity: Google.org funded with $1bn.

The New York Times has an article describing Google's charity: Google.org funded with $1bn. What makes this interesting is that its legal status is the same as that of a corporation--it is a for-profit entity rather than a non-profit.

This means that Google.org is not subject to the 501(c)(3) IRS code that restricts what a non-profit can do.  A drawback is that it would pay taxes on revenues that would be exempt if it were a non-profit.

Another drawback is the general perception of for-profit versus non-profit organizations. Non-profit status carries a "saintly" aura in our society, while a "for-profit charity"  sounds distasteful, it smacks of trying to make money from social causes.

Larry Brilliant, the head of Google.org said this for-profit issue was a problem for him when he was first offered the job. 

. . . At first, Dr. Brilliant said, he was thrilled. But then he turned skeptical, largely because of the for-profit structure of the organization.

“I got weak knees,” he said. “It was weird. It was precedent setting.” After several lengthy conversations with executives at Google, Dr. Brilliant changed his mind.

Source: Philanthropy Google’s Way: Not the Usual - New York Times

What Google is trying to do is important because it tackles an important issue I've spoken about: why should a company or organization, whose charter is to develop useful social projects, be tied down by the restrictions of a non-profit?

A for-profit designation does not mean it has to make a profit. A  for-profit corporation with a mission statement that is similar to that of a non-profit charity could gain many of the same tax benefits as a non-profit by simply controlling how much profit it makes. 

But the public perception of a "for-profit charity" has negative connotations that are difficult to overcome.

A far better designation than "non-profit" would be: "not-for-loss." A not-for-loss company could execute on its social causes and be self-funded because its profits are reinvested.

Also, there would be no need to use up time and resources in raising money from donors, as is the case with many non-profit organizations.

A good example of a not-for-loss organization with a strong social charter is the Grameen Bank in Bangladesh. It has been very successful in pulling tens of millions of people out of poverty through micro-loans.

The interest rate it charges is higher than from other banks but this allows it to be self-financing, and to grow its social mission. It doesn't need to go cap-in-hand to the Bill Gates Foundation, or anywhere else, to ask for grants to continue its work.

Another important aspect of the Grameen Bank structure is that its customers are also shareholders. This is something that Google.org should look into because its funds and projects could be yanked in the future by Google management or shareholders.

One of the first projects that Google.org could fund would be to establish the legal structure that others could use to create not-for-loss organizations, in which customers are also shareholders.

The importance of such legal structures should not be underestimated.

We would not have open source software if it weren't for a very powerful legal document, the GPL. This is the license that protects open source software and it has never been challenged in the courts.

The GPL provides a legal structure that makes it possible for communities of developers to create commonly owned open source technologies--and be protected from  costly intellectual property lawsuits.

Google.org could help create a not-for-loss legal structure for organizations with a social mission,  the equivalent of a GPL, available in the public domain. That would create a tremendous amount of social value, IMHO.

Topics: Open Source

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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