Google In For Possible Record Breaking $9B Fine

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The WSJ is reporting that Google may be fined a whopping and record setting $9+B.  That is unprecedented but it was also expected.  What comes around really does go around.  Back when Google was founded they were one of the companies aggressively pushing the EU to fine Microsoft for monopolist behavior.  Like many companies have learned using any government in this fashion is a dual edged sword because the next company in line for this treatment may be the firm that gleefully started the process.  Oracle, which also was pushing for Microsoft to be punished already had their Sun acquisition massively delayed by EU interference effectively destroying the acquisition in the process and now Google faces the mother of all fines partially as a result of getting the EU to take a stronger position on US tech companies

Let’s talk a bit about how we got here and why this doesn’t bode well for Google in particular.

Google’s Problem

I’ve seen this happen to companies ranging from IBM to Microsoft over the years.  The firm, once in power, basically becomes fluid with regard to ethics and what the firm has the power to do starts falling into the bucket of things that are ethical to do.  Things that would have been obviously wrong to the company facing others doing those things become acceptable when the firm is itself in power.

Google reached that point some years back and apparently recognized the risk embedding employees in the Obama administration and putting their then CEO and eventual Chairman in the position of close presidential advisor effectively preventing major US objection to their apparently growing misuse of power.  But they didn’t have that influence on the EU and have largely lost that influence in the US with their last major appointment vacating her job this year.

This means that where the protective layer didn’t exist, the EU, things are ramping to unprecedented fines and the US is likely to reconsider going after Google if the fines remain in place much like the EU was emboldened to go after Microsoft after Microsoft was similarly curtailed in the US.  Recall that back then the States individually went after Microsoft as well which is also likely with Google

It is this cascading effect that creates the biggest risk for Google because they represent a huge pool of potentially accessible funds to strapped State and Federal Agencies in increasingly desperate need of them internationally.  If Google’s parent, Alphabet, doesn’t get their arms around this the potential cascade could consume all of their profits and much of their reserves taking what is an incredibly successful firm and very quickly dropping it into the category of firms on life support.

Prevention Vs. Mitigation

One of the causes of problems of this magnitude is that firms often move to prevent the enforcement of laws they are violating rather than put into place policies that prevent the behavior.  This is generally tactical thinking because the odds tend to favor that eventually the company or industry will be caught and that the longer this behavior goes on the bigger the impact when they are.  Apparently, law enforcement entities in most countries have no sense of humor when it comes to cover ups.

Google clearly recognized they had a problem when they placed so many people into the Obama administration but it was always unlikely that this practice would pass from administration to administration.  And as the objectional behavior increased, the potential liability increases with it and the problem moves from one that is just painful to one that could destroy the company.  Over the decades we’ve seen companies as strong as Google broken up or crippled including Standard Oil, RCA, IBM, Microsoft, and Google looks to be next.

Wrapping Up:

Power corrupts and leads companies to into decisions that can destroy them.  One of the interesting lessons from the Microsoft EU case was that part of that was due to Microsoft not allowing other firms to integrate with their solutions.  But once forced to integrate, Microsoft became one of the best at integration and customers loved this flocking back to the firm.  In short, at least in that one instance, doing the right thing also became the most profitable thing which, when you think about it, if we are talking about treating customers well, is the way it always should work.

In the end, there are a lot of lessons here, one is that firms have to make sure they aren’t corrupted by the power they gain, that staying more focused on customers than short term profits remain the better practice, and that when a firm starts behaving badly working to stop that behavior rather than covering it up generally has a far better result.  Ask Uber about that this year.   And, in the end, doing the right thing, often is the more profitable long terms, and generally less stressful, than the alternative.

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Posted ON : 06/16/2017