As the WiSpy scandal unfolded last week CEO Eric Schmidt, speaking in England, tried to calm the furor by claiming "no harm, no foul." This week it’s clear that despite the fondest hopes of those in the Googleplex, the firestorm won’t go away.
Shareholders should be concerned as well. Why didn’t Google executives level with them during the company’s annual meeting at the Googleplex about the monumental WiSpy privacy breach?
Perhaps Tom Krazit, who covers Google for the online news service CNET, put it best in an open letter to Google calling on it to "come clean on WiFi spying:"
It’s not enough to admit in the precise words of your co-founder that "we screwed up." Pushing the boundaries and then apologizing after the fact is a business strategy that can only work for so long; you can’t fool all the people all the time.
Google collects more data on personal activities than just about anyone outside of the credit card industry, and most of the time that data improves your products and services. Yet your data-hungry culture can at times appear out of step with the mainstream world, and your tendency to brush off concerns about what your company might do with that data and how it protects that data troubles many who would otherwise see your company in the brightest of lights…
Collecting data that users of your services submit willingly to the Internet is one thing. Driving the streets of the world and absorbing packets of data that come your way–no matter how inadvertent it may have been–is quite another.
The privacy advocacy group EPIC has asked the Federal Communications Commission to investigate the Internet giant’s snooping on private WiFi networks. That comes after a letter from Rep. Joe Barton and Rep. Ed Markey to the Federal Trade Commission asking it to probe the situation. We have also asked the FTC to investigate and late last week FTC Chairman John Leibowitz told a Senate hearing that his agency "is going to take a very close look at this."
But shareholders should be especially concerned about their company. An extremely troubling aspect of the WiSpy scandal is the way the Internet giant played them for suckers at the annual meeting. Certainly executives already knew of the WiSpy gaffe when 400 shareholders gathered for lunch and the annual session at the Googleplex in Mountain View on a recent Thursday.
Yet they stayed mum on the topic even though they know how important the issue is to the company’s success and thus of substantial concern to shareholders. Co-Founder Sergey Brin didn’t even bother to show up for the meeting.
The Risk Factors section of the annual 10K form filed with the Securities and Exchange Commission warns that "Privacy concerns relating to our technology could damage our reputation and deter current and potential users from using our products and services."
The report says Google’s "business depends on a strong brand" and warns that "our brand may be negatively impacted by a number factors, including … data privacy and security issues."
Damaged brand equals damaged stock price.
What could have been more relevant than a frank discussion with shareholders? Instead Google opted for the classic PR strategy when confronting bad news. The company announced the debacle late the next day, Friday afternoon, in the hopes it would quickly go away.
It won’t. WiSpy strikes at the heart of Google’s corporate culture. It’s long past time to come clean. Google mend your ways and please be candid with your owners, the shareholders.