No one has learned any lessons.
That’s the discouraging takeaway from a Wall Street Journal article on Tuesday about the nearly unchecked power held by founders of many young technology companies. The people bankrolling those companies are responsible for providing oversight, too, but don’t seem to be doing much of it.
The Journal reported that two-thirds of U.S. startups with venture-capital investors that went public last year had special stock giving insiders more votes than other shareholders and therefore disproportionate power over the company’s direction. These terms aren’t unusual in the technology and media industries. Google parent Alphabet Inc., Facebook Inc. and the New York Times Co. have dual-class shares that in theory allow executives to pursue important initiatives without inference from investors pushing for a quick buck.
That sounds sensible, but dual-class shares and other “founder-friendly” investment terms have done too much damage in Silicon Valley and beyond. There was, of course, the boardroom brawl at Uber Technologies Inc. over ending the voting control of co-founder and CEO Travis Kalanick. Theranos founder Elizabeth Holmes had near absolute authority over a startup that proved to be far less than she claimed. I wonder how public market investors feel now about Snapchat stock that leaves them without any power at all to overrule young leaders that have proved to be inept.
And yet many founders still have near absolute authority over their young companies. A particularly disheartening example in the Journal article was the real estate startup WeWork Cos., whose co-founder and CEO is one of only two members of the board’s compensation committee. In short, it’s possible the WeWork CEO is helping determine compensation for himself and other members of his executive team.
It’s ironic that the other member of WeWork’s compensation committee is from Benchmark, the venture-capital firm that led efforts to eliminate Kalanick’s voting power over Uber after he proved to be a toxic presence who shrugged off oversight from his investors and others.