Yahoo's China "police informant" role sparked a $47.5 billion slide in market value

The anniversary of the Tiananmen Square protests recalls the courage of the Chinese people and the vicious response of the Chinese government.It also recalls the gutless behavior of Silicon Valley tech companies towards the Chinese government in pursuit of profits rather than morals.

The anniversary of the Tiananmen Square protests recalls the courage of the Chinese people and the vicious response of the Chinese government.

It also recalls the gutless behavior of Silicon Valley tech companies towards the Chinese government in pursuit of profits rather than morals. Many are guilty but Yahoo became a poster child for the despicable actions of senior management in fingering one of its Chinese users, leading to a ten-year sentence for journalist Shi Tao for leaking a press release. I've written about my muckraking role as a journalist in keeping the heat on Yahoo here:Remembering The Guts Of Tiananmen Protestors . . . And Gutless Silicon Valley Companies .

Yahoo is just one of many companies that have bowed to pressure and collaborated with the Chinese government. The difference is that it got caught.

Reporters without Frontiers outed Yahoo in September 2005:

We already knew that Yahoo! collaborates enthusiastically with the Chinese regime in questions of censorship, and now we know it is a Chinese police informant as well.

...It is one thing to turn a blind eye to the Chinese government’s abuses and it is quite another thing to collaborate.

Yahoo management defended its actions, which were extremely unpopular among its rank and file. Yahoo employees would boo CEO Terry Semel during internal meetings. I pointed out that Yahoo management was risking its most important asset, its employees.

To hammer home the point I explained how devastating Yahoo's China policy was on its young staff. I called it Yahoo's contribution to controlling population growth.

Factors to consider as a Yahoo employee, your ability to create children, or even find a partner to practice with.

There are a lot of single people at Yahoo and likely to remain so. Software engineers in particular, are already challenged in continuing their genetic lines, it certainly won’t be any easier now.

You walk into a party and inevitably that question comes up. Yes, you could fudge and say that you work for Google, [however, the do-no-evil giant is lucky it hasn't been caught (yet) in a similar snitching situation] and anyway, lying is not a good way to start any meaningful relationship.

Yahoo seems oblivious to a fundamental fact about Silicon Valley’s workforce today: People do care about the moral behavior of companies and they discriminate against them by choosing not to work for them.

Yes, Yahoo did change. It sold its stake in its Chinese subsidiary. It paid penance by contributing $1m to Georgetown university for the study of corporate "international values."

It's leadership put up with incredible public humiliation.

The late and great Silicon Valley representative Tom Lantos, House Foreign Affairs Committee Chairman, (D-San Mateo,) called Yahoo CEO Jerry Yang to the Hill and put him in the same room as the devastated mother of jailed journalist Shi Tao.

He said: "While technologically and financially you are giants, morally you are pygmies."

The San Francisco Chronicle reported:

He called on Yang and Yahoo chief counsel Michael Callahan to turn and face the dissidents' families, seated in the front row, and plead for forgiveness. "I would urge you to beg the forgiveness of the mother whose son is languishing behind bars thanks to Yahoo's actions," Lantos said. Shi's mother, Gao Qin Shen, had tears in her eyes as the two executives complied.

Yahoo did the right thing - eventually. But the damage was done. A hugely demoralized workforce contributed to a massive decline in its fortunes.

From January 2006 to November 2008, Yahoo's share price slid from $43.21 to $9.39.

Yahoo shareholders suffered an astounding loss of $47.5 billion in market cap value.

Was that the true cost of Yahoo's mistaken China policy? We could quibble over a billion or even ten billion dollars.

But the fact remains that employees working at a company that has been publicly accused of being moral pygmies and acting as a police informant for a repressive Chinese government won't be highly motivated. No matter how many free doughnuts you provide.

In a highly competitive environment such as the Internet market, a demoralized workforce will place any company at a serious disadvantage.

People spend much of their life at work and they will work that much harder at a company that is morally and ethically responsible.

Yahoo’s experience creates a great lesson for corporate leaders: Do the right thing - its good for your shareholders. And what's good for your shareholders also happens to be your fiduciary duty.