Ruth Porat (Alphabet CFO) – SIEPR Economic Summit (Mar 2017)

Chapters

Abstract

In an insightful examination of Ruth Porat’s tenure as CFO of Alphabet and Google, the article delves into her first-hand experiences during the 2009 financial crisis at Morgan Stanley, the strategic organizational and cultural innovations at Alphabet, and her perspectives on various contemporary issues including the student loan crisis, immigration, economic forecast, and regulatory frameworks. Porat’s leadership style, characterized by her admiration for Hank Paulson’s crisis management, her commitment to sustainable and inclusive corporate practices, and her approach to long-term strategic planning and innovation at Alphabet, presents a comprehensive view of a leader navigating complex challenges in the modern corporate and global economic landscape.

Ruth Porat’s Financial Crisis Experience and Leadership Insights

Ruth Porat, the Chief Financial Officer of Alphabet and Google, witnessed the rapid market collapse during the 2009 financial crisis while at Morgan Stanley. She worked closely with the Treasury and Federal Reserve during this time, experiencing firsthand the challenges and complexities of the crisis. A defining moment for Porat was recognizing the absence of a private market solution to the AIG crisis, necessitating government intervention to prevent widespread economic collapse. The unprecedented speed of the financial decline left a lasting impact on her.

Porat attributes much of her leadership approach to the lessons learned during the financial crisis. She emphasizes the significance of identifying and addressing vulnerabilities, establishing robust risk controls, and having the necessary systems and resources in place to respond effectively to unforeseen challenges. Porat also highlights the importance of experienced leadership in crisis management, stressing the value of individuals who have faced and overcome challenges, bringing valuable insights and resilience to the forefront.

Porat’s leadership philosophy extends beyond crisis management, encompassing a commitment to building a culture of shared responsibility and accountability. She encourages organizations to foster an environment where everyone understands expectations, elevates concerns, and collectively owns the outcomes. Such a culture, she believes, promotes ethical behavior, early identification of problems, and timely corrective actions.

Alphabet’s Creation and Organizational Structure

Alphabet was established with the primary goal of nurturing innovation and bold betting. The organizational structure is designed to enable intense focus within Google’s core business while allowing other ventures to thrive independently. This structure promotes a culture of calculated risk-taking, exemplified by initiatives such as “20% time,” where employees are encouraged to dedicate a portion of their time to personal projects, fostering creativity and experimentation.

Alphabet’s resource allocation strategy further emphasizes the company’s commitment to innovation. The company allocates 70% of resources to core activities, 20% to emerging areas, and 10% to bold bets. This approach allows Google to maintain its dominance in existing markets while simultaneously exploring new opportunities and encouraging experimentation.

The technical infrastructure at Google plays a crucial role in supporting the company’s innovative endeavors. The scalable and robust infrastructure empowers employees to address problems at a global scale, solving issues for billions of users. This infrastructure, coupled with the company’s ability to attract and retain exceptional talent, creates a virtuous cycle of innovation, attracting brilliant minds who push the boundaries of technology.

Alphabet’s Commitment to Sustainability and Inclusion

Alphabet has demonstrated a strong commitment to sustainability and inclusion under Ruth Porat’s leadership. The company has maintained carbon neutrality since 2007 and has set ambitious goals to fully transition to renewable energy. Additionally, Alphabet emphasizes diversity and inclusion initiatives, including unconscious bias training and family leave policies, creating a workplace that supports and empowers underrepresented groups.

Alphabet’s Growth, Innovation, and Long-Term Strategy

Porat emphasizes the importance of balancing short-term and long-term goals at Alphabet. Despite quarterly pressures, the company maintains a focus on long-term perspectives, investing in areas that align with its mission and values. Porat also criticizes the concept of earnings guidance, arguing that it can hinder innovation and distract from the company’s user-first approach.

Alphabet’s strategic financial management framework prioritizes organic growth and strategic acquisitions, with share repurchases used as a tool for maintaining financial flexibility. This approach allows the company to invest in promising opportunities while preserving its financial stability.

Machine Learning Across Google

Search and Voice Input:

Machine learning enhances user experience in search and voice input. The Assistant enables voice search, deep language capabilities, image recognition, and user context. Voice input doesn’t necessarily mean voice output; users move seamlessly across surfaces.

YouTube:

YouTube video in the living room is the fastest-growing platform. Chromecast facilitates seamless movement across screens. Machine learning enhances search and recommendations on YouTube.

Enterprise and Cloud:

Google offers efficient infrastructure, security, and machine learning benefits to enterprise customers. Machine learning allows deep exploration of customer data sets for effective data usage. Verily Life Sciences uses machine learning for drug discovery and error identification. Machine learning is relevant in diabetes management, drug discovery, and disease management. Self-driving cars also utilize machine learning.

Google’s Commitment to Climate Change

Google cares about climate change and strives to address the challenge. Since 2007, the company has maintained a carbon-neutral footprint and became the largest corporate purchaser of renewable energy in 2010. By the end of 2017, Google aims to power itself entirely through renewable energy. The company’s compute capacity has increased on the same amount of energy due to its focus on energy efficiency.

Ruth Porat’s Focus on Climate Change and Diversity at Alphabet

Climate Change Initiatives:

Google emphasizes climate change as a critical issue affecting generations to come. Ruth Porat refers to Hank Paulson’s comment about having the will and the means to address climate change. She emphasizes the importance of taking action now to ensure a sustainable future. Porat acknowledges that current renewable energy technologies have high costs. However, she expresses optimism about future advancements and cost reductions. Collaboration between academia, companies, and Stanford’s SESI plant is essential for creative solutions.

Diversity and Inclusion:

Ruth Porat emphasizes the importance of increasing diversity in the tech industry. Data suggests that diverse teams lead to better financial performance. Despite slow progress, Google is committed to accelerating diversity through various initiatives. Ensuring a supportive culture and tone from the top is crucial. Unconscious bias training programs and affinity groups promote inclusivity. Addressing issues like interrupting colleagues based on gender or background is essential. Men stepping up to ensure everyone’s voices are heard creates a positive impact. Cultural changes and systematic reinforcement are necessary for lasting improvement. Family leave policies are crucial for supporting diverse employee needs.

Ruth Porat’s Insights on Family Leave, Succession Planning, and Alphabet’s Early-Stage Status

Family Leave Policy:

Ruth Porat emphasizes the importance of family leave policies, not just maternity leave, and the need for both parents to have the right to take time off. She stresses that only 12% of private companies have some form of family leave policy, making it a critical area for improvement.

Succession Planning:

Porat highlights the significance of succession planning and using it as a tool to promote diversity and inclusion in leadership roles. She emphasizes the need to identify diverse candidates and create a pipeline of talent to ensure a more inclusive and sustainable workforce.

Changing the Pipeline:

Recognizing the need to address the diversity pipeline, Google focuses on initiatives to support K-12 education and leverage its philanthropic arm and products to train people for future roles. Porat acknowledges that progress has been made, but there is a need for a more rapid pace of improvement.

Alphabet’s Early-Stage Status:

Porat shares her surprise at Alphabet being in its early stage despite its size and revenue growth. She points to the rapid growth in mobile search, YouTube’s billion hours of daily video watch time, and the early days of the enterprise, hardware, driverless cars, and life sciences businesses as evidence of Alphabet’s potential for continued expansion. Porat emphasizes that market cap, revenues, or number of employees are not necessarily measures of maturity but rather depend on the questions or problems being solved.

Addressing the Student Loan Crisis

Ruth Porat draws parallels between the student loan crisis and the housing crisis, highlighting the lack of transparency and quality in education at for-profit institutions. She believes that technology can play a significant role in addressing the crisis by providing transparency and aiding students in making informed decisions.

Google’s Global Strategies and Economic Outlook

Google values the contributions of immigrants and remains optimistic about long-term growth despite global economic conditions. The company focuses on education, economic empowerment, and responsible information dissemination through its philanthropic efforts.

Regulatory Environment and Financial Flexibility

Porat stresses the need for balanced financial regulations that promote stability without stifling innovation. She also supports community banks and believes they play a vital role in the financial system.

A Different View on Earnings Guidance

Alphabet’s CFO Ruth Porat challenges the traditional approach to earnings guidance, arguing that it can be limiting and hinder the company’s ability to focus on long-term goals and user-centric innovation. Porat emphasizes the importance of empowering investors with transparency and insights into the company’s long-term vision, rather than providing short-term financial projections that may not align with the company’s strategic objectives.

User-First Approach to Revenue Growth

Google’s revenue growth strategy is centered around prioritizing user experience and satisfaction. Porat believes that by focusing on delivering value and improving the lives of users, the company can drive sustainable revenue growth over time. Innovation and user-centric product development are seen as key drivers of long-term revenue growth, as Google strives to maintain its leadership position in existing markets and explore new opportunities.

Thoughtful Resource Allocation

While Google places a strong emphasis on long-term investment and innovation, Porat highlights the importance of making smart and deliberate decisions regarding resource allocation. She advocates for a balanced approach that allocates resources across various opportunities, including core businesses, emerging areas, and bold bets, to maximize returns for investors while maintaining financial flexibility.

Learning from Both Financial and Technology Industries

Porat acknowledges the valuable learning opportunities that exist between the financial and technology sectors. She draws upon her experience in the financial services industry to inform her decision-making at Google, recognizing that cross-industry collaboration and knowledge sharing can drive innovation and success. Porat encourages individuals to pursue their passions and gain experiences in different fields to broaden their perspectives and enhance their contributions.

Importance of Transparency and TGIF

Google’s TGIF (Thank God It’s Friday) meetings, hosted by founders Larry Page and Sergey Brin, are seen as a cornerstone of the company’s culture of transparency and accountability. Porat emphasizes the significance of these meetings in fostering open dialogue and ensuring that employees’ concerns and feedback are heard and addressed. This culture of transparency empowers employees to hold the company accountable and promotes a sense of collective ownership.

The Value of Process

Porat dispels the notion that well-defined processes are synonymous with bureaucracy. She argues that clear processes provide a solid foundation for calculated risk-taking and innovation. By establishing a structured approach to decision-making and execution, Google can move forward with confidence, knowing that it has a strong foundation in place to support its ambitious goals.

Student Loan Debt Crisis

Porat draws attention to the alarming state of the student loan debt crisis, highlighting the lack of transparency and accountability in for-profit educational institutions. She emphasizes the need for systemic reforms to address the root causes of the problem, including providing students with more information and support to make informed decisions about their education and career choices. Porat also sees a role for technology companies in developing tools and resources to help students navigate the complex landscape of higher education and student loans.

Immigration

Porat affirms Google’s stance as a supporter of immigrants, recognizing their contributions to the company and the U.S. economy as a whole. She highlights Google’s involvement in amicus briefs and other advocacy efforts to protect the rights of immigrants and promote comprehensive immigration reform. Porat believes that immigrants bring diverse perspectives and skills that fuel innovation and economic growth.

Economic Forecast

While declining to provide a specific economic forecast, Porat acknowledges the challenges and uncertainties of the global economy. She emphasizes Google’s focus on riding long-term secular waves and investing in opportunities that align with the company’s mission and values. Porat believes that Google’s strong financial position and commitment to innovation will enable it to weather economic storms and continue to drive growth.

Responsibility for World’s Information

Porat articulates Google’s mission to organize and make the world’s information universally accessible, relevant, and appropriate. She underscores the importance of combating fake news and misinformation by employing algorithms and other tools to ensure that information is sourced from credible and reliable sources. Porat also highlights Google’s commitment to promoting education, economic empowerment, and inclusion through its philanthropic efforts and products.

Helping with Refugee Crisis

Porat describes Google’s response to the European refugee crisis, providing Chromebooks, translation services, and language learning resources to aid refugees in their resettlement efforts. She emphasizes the responsibility of companies to contribute to addressing global challenges, and she encourages others to join in supporting refugees and displaced individuals.

Google’s Stance on China

Porat declines to comment on Google’s current stance and strategy in China, citing the complexity and sensitivity of the matter. She acknowledges the challenges of operating in a market with unique regulatory and political considerations. Porat reiterates Google’s commitment to responsible and ethical business practices in all its operations, regardless of location.

Cash Balance Management

– Google maintains a large cash balance to ensure financial flexibility and support ambitious growth initiatives, including acquisitions.

– Ruth Porat emphasizes the strategic importance of having sufficient financial resources to capitalize on opportunities and make bold moves.

– The company evaluates potential uses of cash, including organic growth, strategic acquisitions, share repurchases, and operational requirements.

Tax Policy and Repatriation

– Google’s cash is roughly split 40% domestically and 60% overseas.

– The potential for tax repatriation under tax reform could impact the company’s cash allocation decisions.

– Porat emphasizes that financial flexibility is more critical than the geographical distribution of cash.

Financial Regulation Post-Financial Crisis

– Porat strongly advocates for financial regulation, particularly in the aftermath of the financial crisis.

– She highlights the importance of regulations, such as capital requirements, liquidity management, and stress tests, in ensuring the stability of the financial system.

– Porat commends the effectiveness of stress tests in gauging potential vulnerabilities and forcing banks to take on necessary equity capital.

Analysis of Dodd-Frank

– While Porat acknowledges that not all aspects of Dodd-Frank were perfect, she believes that the overall regulatory changes were necessary and beneficial.

– She points to the Volcker rule as an example of a regulation that had the unintended consequence of punishing entities not directly responsible for the financial crisis.

– Porat suggests that regulations should be carefully evaluated to ensure they are effective in addressing specific issues and that unintended consequences are minimized.

Balancing Regulation and Innovation

– Porat notes the concerns raised by community banks regarding the impact of regulations, which she recognizes as valid.

– She advocates for a measured approach to regulation that balances the need for financial stability with the ability of diverse financial institutions, including community banks, to operate effectively.

Financial Risk and Regulation

– Ruth Porat believes that student debt is the primary source of financial risk today.

– Porat supports financial regulations and would be concerned if regulations were reduced.

Concerns about Student Debt

– Porat acknowledges the well-documented fact that a disproportionate share of delinquencies and debt is associated with for-profit educational institutions that have not delivered on their promises.

Potential Solutions for Student Debt

– Porat suggests that skin in the game is necessary for those receiving student loans, particularly in the front-end origination process.

– She supports exploring repayment option initiatives championed by Elizabeth Warren.

Current Involvement

– Porat clarifies that she has not actively worked on student debt issues since moving to Alphabet and is currently out of date on the topic.

Concluding Remarks

Ruth Porat’s leadership at Alphabet and Google is marked by a multifaceted approach that balances innovation, sustainability, and strategic foresight. Her experiences during the financial crisis shaped her perspectives on crisis management, organizational structure, and regulatory frameworks. Porat’s insights into Alphabet’s journey showcase the complex interplay between corporate leadership, global economic challenges, and the evolving technological landscape. Her commitment to transparency, diversity, and long-term thinking has positioned Google as a leader in the digital age, driving innovation and positively impacting society.

Notes by: ZeusZettabyte