Elon Musk may or may not buy Twitter. It was revealed this week that the apparently agreed sale carries a $1 billion break clause. If that sounds like a lot, remember that $1 billion is a small change for Elon. By my calculations, that’s to him what my local municipal pool membership fee is to me.
If there’s one thing Musk and I agree on, it’s that Twitter is of great societal importance. It has indeed become, as he puts it, the “de facto public square”. Given that this is the case, that the fate of Twitter rests in the hands of just one man is shocking, especially a man whose quirks are so finicky.
It is, however, indicative of the new business world. In the old world, it was more difficult for an entrepreneur to acquire so much power. In 1844, one of the most influential laws in history was passed: the Joint Stock Companies Act.
At this time, the public limited company was born. A company, once owned by its directors, has become an entity in its own right. The result is that directors are protected from the companies they run: a company can go bankrupt without bankrupting its directors. At the same time, a company was protected from its directors, whose ability to exercise control was limited by their liability to its shareholders.
In Silicon Valley, however, they move fast and break things. The guiding principle of the public limited company is just another example. Today, the big titans of Silicon Valley are, in theory, public companies. And if you want, you can indeed buy a share of Meta or Alphabet or Tesla. In doing so, however, you will find that some shareholders are more equal than others.
Indeed, Silicon Valley is the country of “dual-class shares”, where not all shares have the same voting rights. It is for this reason that Mark Zuckerberg may hold 14% of Meta but hold 58% of the votes. It’s an arrangement that allowed Zuckerberg to create great wealth by selling off pieces of his business without ever actually ceding control or becoming accountable to anyone.
For years, the London Stock Exchange has argued that dual-class share deals like these would prevent a company from listing in its premium segment. Late last year, however, he caved to considerable pressure, including from the Kalifa Review to UK FinTech.
“One share, one vote” used to be sacred in the city, but that’s no longer the case. Some held on. A number of investors refused to back Deliveroo’s disastrous IPO due to its dual-class shares. Deliveroo’s terrible performance since, now valued at little more than the money it holds in its bank accounts, suggests they were right.
Dual-class actions, however, don’t seem to be going away any time soon. It is a loss for the shareholders, and it will also be a loss for society. It comes, after all, at a time when corporations and their leaders seem to be arrogating to themselves more power than ever.
The movement often referred to as “stakeholder capitalism” argues that corporations should be accountable to the whole of society, not just to shareholders. This means that a business should be responsible for more than just generating a profit. They must act in the interests of all of us, more like a government than a business.
It is a rejection of Milton Friedman’s argument for “shareholder primacy”, published in the New York Times in 1970. Many remember his famous phrase: “the social responsibility of corporations is to increase their profits”. . Fewer, however, remember that he also argued that any further action would be undemocratic, with executives assuming powers that should be allocated through democratic means. Public policy, he believed, should only be decided with public consent.
Whether or not you agree with Friedman on corporate accountability, it’s hard to disagree that corporate leaders should be accountable to someone, and to their shareholders at the very least. . Today, however, a new breed of executives has emerged, sitting atop a public company with little accountability even to those who are its legal and rightful owners. The stock company created a kind of democracy. What we have now is more like tyranny.