Google the mutual fund company

No, Google isn’t managing investments. They’re still devoted to “organizing the world’s information,” but that doesn’t matter to the SEC. A rule enacted in 1940 could cause increased regulatory headaches for the company.

Companies whose securities make up more than 40 percent of their assets can fall under restrictions that govern the mutual fund industry.

Google apparently is still awash in IPO cash, prompting the question – why did they have it if they weren’t raising funds for something? They’ve got nothing better to do than sit on $9.8-billion, which makes up nearly 70% of their total assets?

It would be “extremely onerous” for a company whose main business involves anything other than managing money to be regulated as a mutual fund, said Kenneth Berman, a former associate director in the SEC’s investment management division. For example, the 1940 law restricts companies’ ability to borrow money as well as issue stock options.

This is kind of telling, now isn’t it? Stock options are bread-and-butter compensation for tech companies, including Google. Case in point, Microsoft and Yahoo had to apply for the exemption from the rule that Google is now applying for.

The SEC will provide an exemption to companies that can show their primary business is other than investing, owning and trading securities. Google’s application said the company’s Internet, advertising and new media operations accounted for 92 percent of net income in 2005.

I don’t think there’s much of a chance that Google isn’t going to be granted the exemption. It sounds like the threshold is pretty low for justifying that the business doesn’t qualify for the regs. And the numbers back it up.

Google has a problem though, and that is what to do with all that cash. Some have already begun speculating what would happen if Google wasn’t exempted from the rules:

Google would be more likely to expand its infrastructure than spring for a large company… Google’s acquisition history shows that the company sticks to smaller companies… They’re going to continue to focus on smaller acquisitions that are predicated on proprietary technology and talented developers and engineers.

Dividends are out of the question strategically, although they are technically an option. Once dividends are paid, the expectation is they will continue to be paid in the future and the market does not look favourably on companies that buck the trend. But then, there was this about a week earlier:

On its India web site, Google has invited applications from people who can “identify and evaluate acquisition opportunities across existing and future market opportunities, drive management team decisions, lead deal execution, and help manage post-acquisition integration and performance evaluation in the South Asia Region.”

So it looks like Google might have some takers for that cash after all. Investing in India is a smart move as well. What do you think Google should do about its abundance of cash?


Microsoft splurges on more Microsoft stock

We’ve all been wondering just what Microsoft was going to do with that massive reserve of cash it’s been sitting on for years, not unlike a corporate Smaug. Turns out, they’re buying some shares in themselves.

It isn’t news that Microsoft is buying back some of their shares, but what is news is that they have decided to buy more back than originally announced. It sounds like Microsoft found a surefire way to increase their stock price without having to do anything productive with their assets like, oh, say, innovating.

The stock is getting the expected boost from the buyback, but I can’t but help wondering why Microsoft doesn’t have better things to invest in. Isn’t their industry just brimming with opportunities?


Casual Fridays become Casual Weekdays

What qualifies as acceptable attire in the workplace has been changing ever since the advent of Casual Fridays. Friday has become every day of the week, and there’s a growing backlash against the slackening of dress codes. Tie Tuesdays are beginning to crop up.

A couple days ago I blogged about going to client’s, which is relevant because I can attest to the fact that in nearly every workplace I’ve visited, the dress code has been very casual. Accordingly, our dress code has been loosened. We’re instructed to dress a degree more formal than the client, which makes sense.

You don’t want to show up at an office where the employees are dressed in jeans and you’re wearing a suit and tie. You’d look like a lawyer, and no one likes lawyers.

(I don’t have a problem with lawyers though, some of my friends are even law talkin’ guys. Although drinking with them is a bit trying at times because they keep talkin’ law.)

The exception for me is when I’m at law firm clients, where the employees are dressed to the nines and it’s literally impossible to dress a degree more formal, short of wearing a tuxedo.

So, is the casualizing of the workplace a good thing? To an extent, I think it is. Comfortable employees are happy employees, and happy employees are productive. What do you think?


Saga of Semco continues

I blogged about Semco SA yesterday, but it was a shallow, dull post merely outlining the ways in which the management philosophy has improved operations for the Brazilian manufacturing and environmental/IT services company. Some more interesting details:

  • Due to management style clashes with his father and founder of the company, current CEO Ricardo Semler threatened to leave the company in 1982. Rather than see this happen, Antonio Semler quit as CEO and vested majority ownership in his son. On his first day as CEO, Ricardo fired 60% of all top management.
  • Adopted a lattice organizational structure, which places 6-10 workers in a team responsible for a task and imbues a sense of ownership and financial responsibility within the team.
  • The Brazilian economy tanked in the early 90s, and workers at SEMCO agreed to wage cuts (their share of profits increased to 39%), management salaries were cut by 40% and employees were given the right to approve every item of expenditure. This allowed the company to ride out the recession and resulted in employees learning more about the business and providing useful suggestions to improve operations.

My summary: Ricardo Semler simultaneously worked to enable his employees to give him useful advice while providing them with the incentive to provide that advice enthusiastically.

The former through the openness of the organization which allows workers to learn how it operates in greater detail than in traditional businesses.

The latter not merely through profit sharing, but also by treating their workers with respect and giving them greater responsibility.


Unorthodox management style is paying off for Semco

Semco is a Brazilian company that has recently taken digg by storm and is making waves amongst more real world folks too. The company is turning pretty much everything we know about how to run a business organization upside down, and getting great results doing just that.

The long and short of it:

  • Employees set their own working hours and choose their salaries and the leader they want to work under
  • All meetings are voluntary and open to everyone
  • Employees hire their own bosses, rate them twice a year and the ratings are published
  • Employees can take early retirement, meaning they get one day a week off in return for working one day a week after they retire

The company’s CEO has set happiness as job #1 for the company – not profits. Employees are treated like adults and are trusted to make responsible decisions. It’s a really cool way to run a company, and it definitely sounds like somewhere I’d like to work.

I think the accounting industry should take a closer look at the way this company operates, especially given how few and far between good CAs are in today’s market.