Silicon Valley’s Arrogance Can’t Last

(Bloomberg Opinion) -- Silicon Valley companies don’t like anybody else having a say in their operations. Grumblings about initial public offerings are just the latest example.

While the highest-profile tech IPO of the year, Uber, has thus far been a disappointment, other U.S. tech names have begun their lives as publicly traded companies trading far in excess of their IPO price. Some in Silicon Valley say that mean the bankers who handled the IPOs messed up the pricing, and not-yet-listed companies suspect they might be better off doing direct listings rather than going through the IPO process. Slack listed directly on Thursday, meaning its owners sold some of their shares rather than creating new ones through IPO intermediaries. And hey, if you can cut out the middleman while still accomplishing what you set out to do, why wouldn't you?

It’s a theme beyond public listings: Large Silicon Valley companies seem to want to operate monopolistic platforms immune to pushback from governments, workers, shareholders or users.

Facebook, YouTube and Twitter created open platforms and rode that business model for as long as they could – though now in the late 2010s all are facing hard questions like who should be allowed to participate, what content should be allowed or taken down, what sorts of hidden biases algorithms can have, and who should have access to user data. They could end up regulated like publishers are, or under some other approach.

This generation of technology companies has also sought to change the relationship between employer and employee. While private-sector unions have been in decline in the U.S. for decades, some of these companies have taken “at will” employment a step further by relying on contract labor, as Uber and Lyft have fought to classify their drivers. Google has more temp and contract workers than full-time employees.

Because these platforms are largely unregulated in the U.S., decisions about their operations are left to company management, who ultimately answer to shareholders. But Silicon Valley executives tend to insulate themselves from investor pressure. Many companies have created super-voting shares giving additional voting rights to founders and early investors, meaning that there often isn't any recourse for shareholders who are unhappy with how companies are run. Because of how much voting control Mark Zuckerberg has, he gets to operate Facebook as his own personal fiefdom.

Beyond super-voting shares, Silicon Valley has also set out to change the way public markets work, to de-emphasize the role of active investors through robo-advising platforms like Wealthfront and Betterment. They're also seeking to create a “long-term stock exchange” that would, among other things, give more voting rights to long-term shareholders, mimicking the approaches taken by Zuckerberg and others.

The industry’s Wild West style can’t go on forever, and it shouldn’t.

Greater government involvement could incidentally push Silicon Valley toward respecting and rewarding shareholders. And although Silicon Valley complains that shareholders are short-term oriented, lofty valuations of Amazon, Tesla and many fast-growing software-as-a-service companies suggest otherwise.

Regulation can increase trust in platforms, leading to more customer usage and perhaps higher advertising rates.

Switching from contract workers to employees, or even unionized workers, can lead to a more dedicated, stable workforce, especially important as the U.S. labor market tightens.

And even in the case of IPO underwriters, Silicon Valley is too quick to dismiss their value. Underwriters may be better able than direct listings to place shares in the hands of buyers who will hold through tough times. And in the case of cash-burning growth companies that will need to raise capital later on, having those banker and shareholder relationships may make future secondary offerings easier.

A maturing Silicon Valley shouldn't be so quick to dismiss middlemen. They're not all bad.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

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