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Sundar Pichai just got a big promotion and inherited a major headache.
As the newly anointed chief executive of Alphabet Inc. GOOG, +0.57% GOOGL, +0.61% , the Google CEO is now in charge of all operations at the $850 billion behemoth that includes a laundry lists of challenges from a federal antitrust investigation to employee backlash over harmful business practices and a slowing core ad business.
See also: Google founders step down, put Pichai in charge of Alphabet
The decision by company co-founders Larry Page and Sergey Brin to step aside and hand the reins to Pichai, who took over Google in 2015, leaves Pichai in an unenviable position, say corporate governance and legal experts.
“It feels as if Page and Brin have given up and never liked the spotlight,” Jeffrey Sonnenfeld, a Yale School of Management professor, told MarketWatch. “Pichai is not being used as a foil to blame, but as a shield to protect them from hard problems.”
Chief among them is a Justice Department-led probe of Alphabet’s vast business operations that reportedly includes scrutiny of its YouTube property. Pichai, who has calmly and adroitly testified before Congress on data and privacy issues while Page and Brin were noticeably absent, is likely to be the focus of tough questioning in the future, though Page isn’t entirely in the clear now that he is no longer Alphabet CEO and involved in day-to-day operations.
“Congrats on the move, Larry Page!” Democratic presidential contender Sen. Elizabeth Warren, D-Mass., who has advocated breaking up big tech companies, tweeted this week. “Quick reminder: We do still expect you to testify before Congress. And changing your title while staying on the board and retaining effective control of it will not exempt you from accountability.”
Indeed, the change in executive management at Alphabet will not change how the government proceeds in investigating the company — nor will the new roles of Page and Brin reduce their responsibility, according to legal experts.
“At the end of the day, at least for antitrust-type matters, the identity of the senior managers is just coloration that has little, if any, substantive importance,” Doug Melamed, a professor at Stanford Law School, told MarketWatch in an email message.
As Alphabet’s clear-cut leader, however, Pichai is on the hot seat as well, Sonnenfeld said. Employees have been outspoken in their criticism of the company for its handling of accusations of sexual misconduct by executives, and for its plans for a censored search engine in China as well as a Pentagon contract that could aid drone strikes. Four engineers recently fired by Google said they plan to file a complaint with the National Labor Relations Board. They accuse the company of engaging in a sweeping illegal campaign to silence employee activism. Google claims the workers committed data-security violations..
Pichai’s added responsibilities also includes what to do with so-called “Other Bets,” wildly ambitious startups under the Alphabet umbrella that, with the possible exception of autonomous-driving project Waymo, have been less than scintillating.
The billionaire founders, who retain voting control of the company even though they collectively own less than 12% of it, have been down this road before. From 2001 to 2011, Eric Schmidt led Google to record revenue as CEO before Page succeeded him.
Alphabet’s new corporate structure took hold in 2015, with the ascent of Pichai as Google CEO. Under him, Google was responsible for 99.6% of Alphabet’s $136.8 billion in revenue last year, according to FactSet.
Despite it all, and the perception that Google’s billionaire founders are leaving Pichai and Chief Financial Officer Ruth Porat to do some major heavy lifting while they act as puppeteers in the background, several analysts expressed relief that there is clear and distinct order atop the company’s org chart.
“We view the streamlining of the management structure as a positive for investors,” Stifel analyst Scott Devitt said in a Dec. 5 note that raised Alphabet’s target price to $1,525, from $1,325, and upgraded the stock to Buy from Hold.
“Sundar is the only sheriff in town,” Evercore ISI analyst Kevin Rippey wrote in a Dec. 3 note. “If anything, our conversations have suggested modest confusion among investors as to the need for GOOGL’s matrixed leadership structure.”
There are even some analysts who downplay the regulatory risk for Alphabet, regardless of who is in charge.
“While there’s no question that the company will face ongoing regulatory scrutiny, which could lead to some headline risk, the investor community has, to some degree, become numb to this and we believe the positives of the underlying business will outweigh negative newsflow,” Piper Jaffray analyst Michael J. Olson said in a Dec. 3 note initiating coverage of Alphabet. He gives the stock an Overweight rating and price target of $1,500.
