An annual pantomime of shareholder capitalism is currently playing out in Silicon Valley. It comes around every spring, as tech companies face — and swat away — a barrage of proposals from shareholders at their annual meetings.
These events took place at Facebook and Amazon on Wednesday, with Alphabet due to hold its annual meeting next week. Special classes of shares that give majority voting control to Mark Zuckerberg at Facebook, and to Larry Page and Sergey Brin at Alphabet, make any outside opposition purely token.
Jeff Bezos, with a 14 per cent stake in Amazon, is not entrenched by special voting rights, but he exerts strong influence as one of the era’s most successful founder-chief executives.
This year, shareholder proposals challenging the companies’ boards have ranged from requiring Facebook to do more to prevent the spread of disinformation, to forcing Alphabet to appoint a director with human rights expertise and report on how it deals with antitrust risks. Ideas like these are not just the preserve of fringe activists: the proposals at Alphabet won the backing this year from ISS, which advises many institutional investors on voting.
Not that this will do anything to shape the outcome. The results from the votes at Facebook and Amazon are not yet in, but no one is holding their breath.
Ironically, Big Tech’s parody of boardroom accountability has coincided this week with a dramatic demonstration of stockholder democracy elsewhere. On the very day that Amazon and Facebook were fending off their investors, anger that big oil companies aren’t adjusting fast enough to the realities of climate change led shareholders to hand two board seats at ExxonMobil to activists, and to override the Chevron board on reducing greenhouse gas emissions.
Big Tech’s investors are obviously a long way from needing to take such drastic steps to protect their wealth. But the levels of shareholder dissatisfaction have been edging up, and point to mainstream concern.
The distorted voting arrangements have themselves become a focus of widespread resentment. At Alphabet, 31 per cent of votes cast at last year’s shareholder meeting were in favour of a resolution to do away with special classes of voting shares. A similar proposal at Facebook got 27 per cent support.
What can look like small levels of support for other proposals that challenge the tech companies sometimes mask a bigger groundswell of concern. Last year, for instance, only 11 per cent of votes were cast for a proposal that Alphabet should make detailed disclosures about instances when governments force it to censor content. ISS calculates that without the lopsided voting structure, this would have translated into a sizeable 34 per cent opposition to the company’s board.
In the same vein, a 13 per cent vote last year seeking to tie executive pay at Alphabet partly to sustainability goals would have been equivalent to 39 per cent support in a more democratic system.
Outside shareholders might be expected to play a bigger role as pressure builds to hold the tech industry more to account. But thanks to lopsided voting structures and the long shadows cast by founder-CEOs, they have been left on the sidelines.
At a time when their businesses are going from strength to strength, it is tempting to minimise the need for outside intervention. When you look at the stock price charts, what is there be to complain about? But there are still important issues for the long-term wealth of investors. For example, the threat from antitrust and other forms of regulatory action has become the biggest cloud looming over Big Tech.
The lack of traditional shareholder control may also be leading companies to experiment with other forms of governance.
The external board that Facebook has set up to second-guess some content-removal decisions — a body Zuckerberg likes to refer to as a “supreme court” — is designed to relieve the company’s founder of one of his most controversial personal responsibilities. The arrangement has drawn criticism from governance experts who think a company should always retain responsibility for its own most consequential decisions. A more powerful board answerable to all shareholders might not have felt the same need to pass the buck.
With Big Tech stock prices at or close to record levels, entrenched founders have shown little need to respond to shareholder pressure. But the drumbeat of unrest heard at this year’s annual meetings is only set to get louder.
Written by: Richard Waters
© Financial Times
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