Google – Responsibility To Warn Shareholders?

    February 1, 2006

The Age asks a tough question: If Google knew its fourth-quarter tax rate was going to be almost 70% higher, did it have a responsibility to warn shareholders?

Since Google could have seen weeks, if not months, ago that it was going to be hit with a 41.8% tax rate, far higher than the 30% forecast, should it have warned the board, which would have in turn been responsible for warning shareholders?

In the age of Sarbanes-Oxley, which aims to get more and better information to investors quickly, unexpected earnings misses create a dilemma for companies: If they know revenue or profit is going to come up short, are they obligated to disclose it in the course of a quarter?

Google has said from the get-go it would not kowtow to investors, that it would not issue any revenue or profits forecasts and be held under the thumb of investors, but Google is still responsible to those investors. In this case, had Google been up front, it would have simply been transparent with those who sunk money into its company, and tax rate issues would not have affected Google’s freedom to innovate.

Fact of the matter is people have sunk over $100 billion into Google. That doesn’t mean they can bully the company into doing, well, anything, but they simply deserve the information necessary to make a decision in regards to where they are putting their money. After all, isn’t Google all about information?

Its overall fourth-quarter tax rate was 41.8 pe rcent and taxes paid on European profits are at far lower rates than in the United States. Google had forecast a tax rate of about 30 per cent for all of 2005; the actual rate ended up at 31.6 per cent, skewed higher by the fourth quarter.

Of course, that Google didn’t say anything earlier about the tax rate shouldn’t surprise many. Since going public, in August 2004 at $US85 per share, the Mountain View, California-based company has held to a practice of not issuing any revenue or profit forecasts whatsoever.

Nathan Weinberg writes the popular InsideGoogle blog, offering the latest news and insights about Google and search engines.

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