Jerry Yang on the Hot Seat

In congressional hearings, the Yahoo! co-founder and CEO addresses questions about the company's role in human-rights violations in China

For two years, journalist Shi Tao has been confined in a Chinese prison for the contents of an e-mail. On Nov. 6, Yahoo! CEO and co-founder Jerry Yang answered to Congress for his company's role in landing Tao behind bars. The House Committee on Foreign Affairs called on Yang on Nov. 6 to explain what reasons the Chinese government gave when it requested information from Tao's Yahoo (YHOO) e-mail account. Yahoo ultimately turned over e-mail messages that discussed the government's policy on reporting about the anniversary of the Tiananmen Square protests of 1989. Tao was convicted in 2005 of disclosing state secrets and is serving a 10-year sentence.

Yang faced harsh criticism for Yahoo's actions. Members of the House Committee had already accused Yahoo General Counsel Michael Callahan of providing false information during a February, 2006, hearing about U.S. companies complying with government controls on Internet use in China. "It's one thing not to know something, it's another thing altogether to choose not to know. I'd like to find out, at this hearing, whether the whole corporate culture of Yahoo was shaped by a fundamental decision not to look too closely into what their employees in China were doing," said Representative Christopher Smith (R-N.J.), who sits on the House Committee.

The initial hearings explored the prickly compromises that U.S. Internet companies such as Google (GOOG), Yahoo, and Microsoft (MSFT) have encountered when doing business abroad. To gain access to lucrative foreign markets, these companies agree to abide by local regulations that can run afoul of U.S. laws and principles concerning freedom of speech and universal human rights. Google, for example, has refused to turn over information on individuals but began censoring its Web search results after the Chinese government blocked access to the site. Google is now up and running, with censored search results (, 11/1/06).

In his testimony before the Committee on Nov. 6, Yang detailed some of the challenges Yahoo and fellow Internet companies face when expanding into emerging markets. "For a company founded on the principle of increased access to information, these markets hold enormous promise," said Yang. "These markets also present companies with challenges in the areas of free expression and privacy."

A Public Apology

The challenges are evident in Yahoo's initial response to the Tao case. In February, 2006, Yahoo's Callahan had testified that Yahoo did not know why Chinese officials wanted information on Tao. But several months later, a U.S. advocacy group for religious and political prisoners in China published translations of documents sent to Yahoo from Chinese officials stating that Tao was suspected of divulging state secrets. "What those documents say is that, at the very least, Yahoo's Beijing office knew what crimes were being investigated when they were approached by law enforcement in China," says Joshua Rosenzweig, a research and program manager for the Dui Hua Foundation, an advocacy group.

Callahan publicly apologized to the committee at the hearings, though he maintains he did not know at the time of his testimony that Yahoo officials in China knew of the allegations against Tao. His apology focused on his failure to notify the committee and correct the public record after he learned that Yahoo did have this information. "I understand that my testimony in 2006 has caused confusion about what Yahoo knew and didn't know about the contents of a demand for information that Yahoo China received from the Chinese government in the Shi Tao case. This confusion, and my statements at the 2006 hearing, stem from a lack of information on my part, which I sincerely regret," said Callahan, adding that he did not know the Chinese government's request related to state secrets. "I apologize to you today, as I have apologized to your staff a few weeks ago, for not coming back to the Committee once I realized in October, 2006, that the demand contained this additional information."

Callahan's apology alone is unlikely to satisfy committee members. In calling Yang to testify, committee Chairman Tom Lantos (D-Calif.) clearly wanted Yahoo to discuss how it has changed, or will change, its policy on supplying information to government authorities that could result in human-rights violations. In addition to handing over Tao's e-mail, Yahoo provided information about anonymous online postings by three other men that led to convictions for political crimes, says Rosenzweig. Two of the three are still serving multiyear prison sentences.

A Search for a Role Model

The hope among some committee members was that Yahoo would set an example for other Internet companies doing business in China and other countries without freedom-of-speech guarantees. If Yahoo publicly promised not to hand over certain types of information or block access to certain Web pages, such as U.S. embassy Web sites, other Internet companies might have followed suit.

In his opening remarks to Congress, Yang made no such promises. He did, however, outline some actions Yahoo is taking to protect human rights in China. Yahoo has established a team to address privacy and freedom of expression issues. The team, said Yang, consults with academics and U.S. agencies such as the State Dept. to adopt strategies that "limit risks around challenges to freedom of expression and privacy in new markets." Yahoo is also working with nonprofits to develop an industry code of conduct along with other companies.

Yang may wish Yahoo could do more in China. However, his company no longer has much influence in the country. In 2005, Yahoo merged its Chinese operations into Alibaba Group, a Chinese company that runs the e-commerce sites and, paying $1 billion for a nearly 40% stake in the parent company.

Coincidentally, held an initial public offering (, 11/6/07) of stock on the Hong Kong Stock Exchange on Nov. 6, the same day Yang will will be testifying before Congress. While the parent company will retain a majority interest in after the IPO, Yahoo's sizable stake isn't big enough to control the Chinese site's policies. And the CEO of and its parent has already asserted publicly that he plans to cooperate with Chinese authorities.

The Global Online Freedom Act

Committee members also wanted Yang to weigh in on a proposed law called the Global Online Freedom Act of 2007. The bill, introduced by Representative Smith, would make it a crime for U.S. technology companies to supply any government authorities with information about customers that could be used to identify a person. Such information would include names, Social Security numbers, phone numbers, and home addresses.

Already approved by the House Committee on Foreign Affairs, the measure is now being weighed by the House Commerce Committee. "Not only does it protect human-rights activists in countries like China where rights are suppressed, but it also protects the Internet companies," says Patrick Creamer, communications director for Representative Smith. "Yahoo and other companies say they are just following the laws that they are forced to [in other countries].… This gives American IT companies a leg to stand on."

Bound By Local Laws

But Yang's early testimony showed few signs of giving Congress the answers it wants regarding the bill. Although Yahoo officials have said they support the "general objectives" behind the legislation, they argue it "effectively bans" U.S. Internet companies from doing business in China.

Should such a law exist, they say, countries such as China might not allow U.S. companies to operate within their borders since, to do so, they must agree to comply with local laws. Even if a company was permitted to set up shop in a foreign country under such circumstances, its employees there would be vulnerable to arrest if they tried to comply with the proposed U.S. law in a way that violated local regulations.

"Just as companies doing business in the U.S. are bound to follow the laws here, U.S. companies doing business elsewhere are bound by host country laws," Yahoo said in a statement e-mailed to BusinessWeek. "As a company, if Yahoo! is served with a lawful request and refuses to comply, local employees could be subject to civil and criminal penalties, including arrest."

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