The Perils of Perpetual Power
The Economist recently ran an article titled Facebook and the conglomerate curse, and it addresses the future of ESG . The article is about “Silicon Valley’s big five tech giants, Alphabet, Amazon, Apple, Meta and Microsoft.” It comments on their drop in market value this year, swollen costs, and slowing core businesses, alongside the “near-absolute control” of the companies’ founders.
The tech company names, and The Economist’s insights on bloat and lagging performance, are attention-grabbing. For me the interesting part of the story are the observations about governance, one of the three ESG pillars of environment, social and governance. As The Economist states, “The best safeguards against … indiscipline are active boards and investors. When successful managers start to believe that they always know best, it is the board’s job to rein them in.”
The article goes on to observe that these tech companies’ governance structures do not facilitate board oversight, by giving disproportionate power to founders with special voting rights.
I have no axe to grind with America’s tech giants. But there is risk in near-absolute control, even – or especially – by a “visionary.” Customers, who are key stakeholders, change while the founding visionary ages and becomes out of touch with the market. There is nothing wrong with this change. It is normal and to be expected. What is questionable is a governance structure that gives near-absolute control in perpetuity, seemingly on the false premise that an individual will always have the vision to lead a company, despite the obvious fact of change.
This is a message for investors, another key ESG stakeholder group, to keep in mind as they allocate their investing dollars. And for board candidates to reflect on as they consider opportunities for board service. What governance structures are appropriate to reward and empower today’s visionary, knowing that tomorrow, whenever tomorrow comes, a new vision will supersede the old, and there will need to be change?
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