Weekly Update

Mr. Schmidt goes to Washington, gets burned, leaves

Silicon Valley has long had a prickly relationship with Washington, DC, and other centers of political and regulatory power. If events of the past couple weeks are any indication, it’s likely to get even more prickly.

Having been burned by revelations of their cooperation with National Security Agency surveillance of emails and internet traffic, several consumer platform providers are now trying to reverse course by clamping down on government and third-party access to their users’ data. Apple has been the most out front, aggressively marketing its hands-off approach to iPhone users’ data, particularly when compared to some other companies it could name, as well as its new policy of non-compliance with police requests for that data.

Google, too, is adding features to its Android phones to enable users to encrypt their data, making it harder for both hackers and the cops to access that data.

The new encryption tools drew a sharp rebuke this week from FBI director James Comey, who accused the companies of marketing tools “expressly to allow people to place themselves beyond the law.”

Other law enforcement officials were even more pointed in their criticism. “Apple will become the phone of choice for the pedophile,” John Escalante, chief of detectives for Chicago’s police department, told the Washington Post. “The average pedophile at this point is probably thinking, I’ve got to get an Apple phone.”

Paradoxically — and to the companies no doubt infuriatingly — the criticism of the new privacy policies from the FBI comes even as Google and others face continued pressure from the Federal Trade Commission in the U.S. as well as European authorities over their alleged lax protection of users’ privacy.

Several technology companies have also lately had second thoughts about their efforts to engage directly in the political process. On Monday, Google executive chairman Eric Schmidt announced on NPR’s The Diane Rehm Show that that Google would cut its ties with the American Legislative Exchange Counsel (ALEC), a conservative, pro-business organization made up of corporate executives and state legislators that drafts model legislation that frequently finds its way onto the books in many states. Schmidt blamed the group’s retrograde environmental policies for the break, accusing ALEC of “literally lying” about the realities of climate change.

Google’s announcement was followed in quick succession by statements from Yahoo, Yelp, Uber and Lyft saying they would definitely or were likely also to sever their contacts with ALEC and citing similar concerns. Microsoft had previously announced its withdrawal from the group, citing ALEC’s opposition to renewable energy initiatives.

Schmidt’s comments to NPR drew a sharp response from ALEC. In a letter addressed to senior Google officials and signed by over 150 ALEC legislative members, the group accused the company of knuckling under to pressure from organizations that “consistently conflate climate change denial with having significant concerns over government mandates, subsidies and climate regulations.”

Technology companies also took heat this week for their lack of transparency regarding their political activities. In a report issued by the Center for Political Accountability (CPA) and the University of Pennsylvania’s Zicklin Center for Business Ethics, technology companies ranked near the bottom of the industries reviewed in disclosure of campaign contributions and lobbying expenditures.

Netflix and Salesforce.com each received a score of zero in the rankings. Facebook narrowly escaped a zero ranking by adding a disclosure page to its web site three weeks ago. The technology companies in the study had a average rating of 44 percent, compared to the overall average of 54.6 percent among all 300 companies analyzed. Microsoft, which has been through the wars in Washington longer than most tech companies, ranked the highest, at nearly 93 percent, followed by eBay, at 86 percent (disclosure: my wife is a former associate director of CPA but was not involved in preparation of this year’s report).

The annual ranking scores companies on such factors as disclosure of political contributions to candidates, parties and party committees, contributions to 527 groups, such as Super PACS, contributions to trade associations that engage in lobbying and disclosure of direct expenditures on advocacy on a particular issue, such as net neutrality.

According to the Center for Responsive Politics, technology companies collectively have spent $71 million so far this year on lobbying, and last year spent $141 million.

Politics is a contact sport. And unlike the logical algorithms that rule the world of code, it rarely produces certain or permanent outcomes. Political winds change, and so do the rules, making it difficult sometimes for companies run by engineers to grok. Having been burned, it’s not surprising that tech companies would want to pull in their horns and go home to Silicon Valley. But when you occupy as big a chunk of the economy as Apple, Google and Microsoft, disengagement is not really a viable option.