Google Stock: Selloff Puts the Company's Management to the Test

Last Updated May 7, 2010 1:52 PM EDT

I have been watching Google's stock fall--down more than 16 percent in just a few weeks--and wondering how much work their employees are getting done? A fall of 100 points in three weeks can be a major distraction at a company where employees count on stock for the bulk of their compensation. Sure, Google's stock price has gone through some brutal periods, such as during 2008, but 2009 was again strong, with the stock doubling between March and the end of the year. Business has been impressive, and surely its employees have been thinking that, at last, Wall Street would reward them as richly it did the earlier Googlers, as the company's employees are known.

Like everyone else, I depend on Google being fast and effective and when companies provide excellent service, their employees ought to be paid well. The difficulty arises when the stock price starts to fall. How do you keep the team engaged, optimistic and focused? When equity is a big part of compensation, can you stop workers checking their portfolios every few minutes? Call me perverse, but I think these moments can be great for true leadership. Here's why.

WEED OUT THE UNCOMMITTED. If you have people working for you who are only there for the money, now is the time that will identify them for you and, with any luck, they'll leave. Employees who check the stock price constantly are poor performers and bad investors. No company wants people there just to make a fast buck; such employees don't believe in service, they don't care about customers or innovation and you are better off without them. Hyper growth companies (especially in technology, I suspect) are always attractive to carpetbaggers - those who want the upside without the risk. Don't waste your time trying to build their morale. Let them go.

STOKE THAT FIRE IN THE BELLY. Real entrepreneurs love to prove themselves; it is the number one motive for starting a business and it's a very big reason why employees join start ups. Leaders should use moments like this to renew commitment and remind everyone that success is not given, it is earned. If there was complacency (and, at Google, there has been a fair amount) now is a moment to replace it with passion. Morale is often highest when you have a fight on your hands. So go on, prove yourselves - again.

STRESS TESTS WEAKNESS. Any time a system is under stress, its weakest points break first. So a downturn -- or a stock downturn -- can be a great diagnostic. Departments and teams that didn't have great leadership will start to founder; you can fix them before they break.

My personal experience is that managing in a downturn is easier than during periods of up, up, up. Why? Because nobody takes anything for granted. And, in this particular downturn, Google has it easy: the downturn isn't about Google. Nobody's abandoned the Internet. Its market hasn't - yet - been disrupted by a new arrival and there's no evidence that its business model--at least its core search business--is flawed. But that doesn't mean they can escape the iron rule of business leadership: Focus. Focus. Focus.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.