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Silicon Valley's autocrats show few signs of relinquishing their power

Mark Zuckerberg
Mark Zuckerberg has refused to give up his control of Facebook Credit: Reuters

It is AGM season in Silicon Valley, although corporate governance does not mean a great deal here. Putting on a suit, hosting a big group of people in a hotel or conference centre, and spending a day listening to their grievances seems like the sort of old-fashioned inconvenience that tech companies wish had been disrupted out of existence by now.

And in at least one case, it has been. Snapchat’s annual meeting last year took place entirely over an internet audio stream. Delivered entirely by the company’s chief lawyer, instead of chief executive Evan Spiegel, the whole charade involved no presentation or question and answer session from shareholders, and lasted less than three minutes. 

Farcical, but at least accurate in how it reflected the power that shareholders wield over the company. The shares sold in Snap’s flotation two years ago do not carry voting rights, and the small number of earlier investors that do have votes have no reason to use them: Spiegel and his co-founder Bobby Murphy control 96pc of voting shares.

At Facebook, Google and Tesla, shareholders are also fairly powerless, although the companies do not make it so manifestly obvious as Snap.  Both Mark Zuckerberg and the duo of Larry Page and Sergey Brin control more than half of the voting rights at Facebook and Google’s parent Alphabet respectively because of similar dual class share structures. 

Zuckerberg’s power was all-too evident at Facebook’s annual meeting last month. Two thirds of independent shareholders voted to remove him as chairman, but the founder’s 58pc voting control meant it was all in vain.

Protests outside Facebook's annual meeting Credit: Reuters

Tesla does not have such a structure, but currently requires a two-thirds supermajority of shareholders to enforce change at the company. Elon Musk’s stake of just under a fifth of all shares makes it very difficult for that to happen. 

And while the tech industry is gradually coming to terms with, or at least admitting to, many of its other problems, investor democracy is becoming increasingly rare. Several of the companies going public in 2019, a record breaking year for tech floats, are adopting byzantine share structures that let their founders control the companies even with a minority economic share.

The two co-founders of Lyft, John Zimmer and Logan Green, own just 5pc of the $17bn (£13bn) company, but around 49pc of voting power, meaning that any effort to oppose them would require almost every single outside shareholder to oppose them.

Pinterest has a yet more convoluted structure that means shares that currently control 20 votes each will carry just one vote each if they are sold, meaning its two leading executives Ben Silbermann and Evan Sharp will rise above 50pc over time. 

Planned listings of Slack and Airbnb are expected to involve similar divides between the insiders and executives that currently own shares, and those who buy in when the companies go public.

Dual class share structures are also signs of other markers of poor governance, according to Kosmas Papadopoulos of Institutional Shareholder Services, who has shown that they tend to be correlated with less independent boards, and a lack of gender diversity.

Of course, nobody is forcing shareholders to back these companies. Research is conflicted on whether poor governance tends to lead to companies’ share prices underperforming. As Musk once quipped in response to investor criticism of Tesla’s structure: “[They] should buy Ford stock. Their governance is amazing.” 

Lyft is one of a new breed of public tech companies to adopt dual class shares Credit: Getty Images

But at a time when Silicon Valley companies are under mounting pressure, particularly when it comes to their monopoly control over various industries, some indication that their bosses are not hell bent on clinging onto power would probably do them some good.

There is little evidence of that happening though. At Facebook’s annual meeting last month, Zuckerberg failed to answer shareholder questions about both his supervoting shares and his role as chairman, which he continues to hold in addition to his chief executive position.  Facebook has made at least some efforts to address and respond to many of its criticisms, so it is not a promising sign that it refuses to engage with questions about its boss’s power. 

With a flood of new tech companies now following its lead, Silicon Valley’s dictators are showing little sign of relinquishing their grip. Some light comes from an unexpected source. At Tesla’s annual meeting this week, the company is proposing that the bar for passing a motion decreases from 67pc to 50pc of shares, cutting Musk’s power over the company. But if Elon Musk’s frequently-chaotic company is being held up as a beacon of improving governance, it is hardly an endorsement of the rest of the tech world.

London is now firmly on tech’s map

Today marks the beginning of London Tech Week, a string of events aimed at boosting the profile of the capital’s start-ups, which are attracting record levels of funding and have established the city as clearly the leading tech hub in Europe.

How does this San Francisco-based correspondent know this, exactly? Well, talk to any software developer in these parts and it isn’t long before the conversation turns to their plans for getting out of Silicon Valley.

While Los Angeles and Seattle are always popular escape routes, London seems to be an increasingly-attractive option, in part due to the growing number of jobs available. “Silicon Roundabout” may not be as farfetched an idea as the somewhat excruciating name suggests.