So Snapchat has gone public, making billionaires of its founders, who __have kept voting rights for themselves and other early investors, causing commentators to complain about other shareholders losing out. I fail to see what all the fuss is about. Or, rather, I do see the need to worry about the power of unregulated private companies that dominate the internet, but not about the status of their investors.
It is unsettling to see a five-year-old company that loses money valued by the equity market at $28bn, more than some of the world’s large and long-established engineering and resource companies. But who know? It could prove to be a Google or Microsoft rather than a Netscape or Yahoo, or one of those long-forgotten names that disappeared in the bursting of the last dotcom bubble.
If investors choose to place their money in Snapchat’s voteless shares rather than the overpriced favourite at Kempton Park, that is a matter for them – as long as gambling remains legal.
The objection appears to be that an unhealthy development is taking place in corporate governance in the US. Snapchat’s founders, Evan Spiegel and Bobby Murphy, are able to remain, in effect, as heads of a private company while tapping into public equity markets. But the idea of different classes of shareholders isn’t new; and there are different levels of appetite for risk and engagement.
After Kraft’s predatory takeover of Cadbury in 2010, I explored the idea of disenfranchising short-term investors in order to give companies the breathing space to make long-term investment decisions rather than be hounded by impatient shareholders or hedge funds looking to make money fast. In the event, we didn’t proceed, when I was in government, for practical reasons such as the need to avoid unintended consequences such as the hobbling of “white knights” in friendly takeovers. But the principle, I believe, was sound.
Critics of Snapchat are worried about how the lack of shareholder voice will prevent excesses of executive pay. Having introduced binding shareholder votes on executive pay policy, I see the importance of shareholder engagement on issues such as pay and diversity, but that isn’t very relevant here. Spiegel and Murphy __have already made their billions and don’t depend on executive pay, and I doubt that the concerned long-term investors in pension funds, who can moderate corporate behaviour, are heavily represented in the post-flotation share register.
The real issue around the governance of the internet giants is not shareholders’ voting rights but market dominance. There is some competition between internet platforms (Snapchat eating away at Twitter’s dominance; the triumph of Google over Yahoo). But there are enormous advantages to being a dominant player, including the kind of network monopoly that allows these platforms to capture advertising at the expense of traditional media outlets such as the Guardian.
Dominant players, however benign the messages featured in such documents as Mark Zuckerberg’s recent manifesto, should be regulated in the public interest. Their algorithms, which control access to information, have enormous power for evil as well as good, as we can see from the proliferation of hate websites, cyber-bullying and abusive porn. Then there is the far from trivial issue of ensuring that tax is paid on the paper wealth being generated and (eventually) company profits.
The European commission, from which the British government is trying to escape, has been making brave efforts to create a regulatory framework for the internet giants while UK competition authorities sit on the sidelines. I don’t think, somehow, that this is a task for the Trump administration – though he may think that an industry dominated by Californian Democrats merits a few hostile tweets. But this is one of the big issues of our time: how to create a business environment in which innovation can flourish while being ready to intervene, through regulation, over the vast concentrations of economic power that result.
