January 25, 2011 / 4:45 AM / 8 years ago

BREAKINGVIEWS-Google's $100 mln babysitter may be worth it

— The author is a Reuters Breakingviews columnist. The — The author is a Reuters Breakingviews columnist. The opinions expressed are his own —

By Robert Cyran

NEW YORK, Jan 24 (Reuters Breakingviews) - Google’s $100 million babysitter could prove good value. After handing him millions of shares over a decade as chief executive, Google (GOOG.O) is paying Eric Schmidt handsomely to stick around as executive chairman for four more years. It’s no fortune compared with his nearly $6 billion of stock. But it’s enough to show he’s needed to balance co-founder Larry Page, the new CEO.

Schmidt of course knows the ins and outs of the business. He can also call on decades of prior experience and contacts. Few can match his roots in the primordial Silicon Valley with stints at Bell Labs, Xerox’s (XRX.N) PARC and Sun Microsystems. This will surely continue to be useful in setting Google’s strategic direction and making acquisitions.

But Schmidt’s real value is as a counterweight to the company’s co-founders, Page and Sergey Brin. As the holder of a huge trove of public data, the company must balance the short-term desire to cash in by using this trove, and the long-run benefit of retaining consumer privacy and trust — not to mention its idealistic motto, “Don’t be evil.”

The dynamics of what even Google calls its management “triumvirate” are somewhat murky, but the co-founders appear to worry more about idealism, while Schmidt has advocated increased commercialization. “Google policy is to get right up to the creepy line and not cross it,” Schmidt once said. Debate about the location of that line is most likely when it comes to markets like China and activities like using users’ data for profit.

So far, the company seems to have struck a reasonable balance while carving out a $200 billion-odd market capitalization. Moreover, actions such as withdrawing from China may ultimately hurt financially but have buffed the company’s reputation for not doing evil. With a lock on nearly two-thirds of all Internet searches and lots of private information from users of gmail and other services, trust is good for the long-run value of the business.

Schmidt might have stayed at Google anyway. The company hasn’t paid him much of anything in recent years — his stock holdings have done the work of incentivizing him. But shareholders may still consider the hefty award worthwhile, both to encourage Schmidt’s continued engagement and to make him less likely to be lured away, leaving his charges home alone.

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CONTEXT NEWS

— Google said on Jan. 24 it had awarded Eric Schmidt $100 million in restricted stock and options. Approximately $55.6 million will be stock, with the remainder in options. The award will vest over a four-year period.

— Google said on Jan. 20 that current chief executive Schmidt would assume the role of executive chairman and co-founder Larry Page would become CEO. Page is expected to take charge of the company’s day-to-day operations from April 4.

-- Google filing: link.reuters.com/cum67r

— For previous columns by the author, Reuters customers can click on [CYRAN/]

(Editing by Richard Beales and Martin Langfield)

robert.cyran@thomsonreuters.com Keywords: BREAKINGVIEWS GOOGLE/

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