This week Google announced it would cave in to demands that the China-based version of its internet service would be censored.  The news set off free speech advocates who branded the company a bunch of hypocrites.

     “How could a company famous for its commitment to make information “universally accessible” sell out?” they ranted.  On the other side of the fence are proponents ranging from Bill Gates speaking at Davos to blogs such as Lawbuzz.

     What’s fascinating about the Google announcement is that it exemplifies a true ethical dilemma.  Usually discussions about misplaced business values involve a right versus wrong legal issue and framing the discussion purely in ethical terms misses out on the opportunity to tap into the spectrum of legal tools than can be used to realign ethics and performance. 

     The Google case is different.  Censorship is legal under the rule of law in China.   It’s the “right” thing to do even though many of us who exercise freedom of speech find it abhorrent.  By the same token walking away from the business and following core values would also have been the right thing to do.  It’s the type of right versus right dilemma explored by Joseph L. Badaracco, Jr. in the book Defining Moments.

    Ethical dilemmas and legal dilemmas both represent reputational risk.  Evidently it’s a risk Google felt justified in taking. I wish them well. 

     The UK-based firm Atos Consulting seems to think so.  Their newly issued report Tackling Compliance to Reap Long-Term Benefit highlights the strategic business value of legal compliance: including better capital allocation, reduced operational risk, and fewer losses.  Despite these benefits, European CFOs surveyed by Atos showed a surprising amount of hostility toward their regulatory environment.

     It’s ironic that the Atos report was issued the same week as allegations of Livedoor cooking the books caused a meltdown of the Tokyo Stock Exchange (see my prior posting on January 18, 2006).  Perceptions that regulations “interfere” with business and are obstacles to be avoided demonstrate that how companies look at the “problem” often is the problem. 

     Until there is a paradigm shift about how business views the law and compliance, recommendations to be more proactive and legally literate will be seen as merely one more unnecessary burden — one that is as easily ignored as the admonition to eat more fruits and vegetables and get more exercise.  We’d rather sit and eat cake.  It’s a lot easier and a lot more fun.

     Unfortunately the corporate malaise of a sugar high is not confined to European CFOs, it can be found around the world as evidenced by Enronesque scandals.  “Businesses that are negative towards governance rules have not yet understood that their benefits outweigh their cost,” according to Morgan Witzel (“The Virtues of Compliance over Complaint,” Financial Times, January 16, 2006).  Among the benefits of being proactive cited by Witzel in his article are:

• Investor confidence resulting from a well controlled organization
• Better access to capital
• Ability to shape the regulatory debate instead of other shaping it for you
• Lower costs associated with taking the lead instead of playing catch-up
• Enhanced reputation
• Shareholder loyalty.

     Smart managers recognize that these benefits create a competitive advantage.  They’re not waiting for the legal aches and pains associated with bad habits to set in before making legal literacy a front line management responsibility.  They understand the value of being proactive. 

     You can’t reach that level of awareness until you stop viewing the law as a business burden and start seeing it as a business tool.  It pays to switch.