What big tech can learn from the financial crash
As syndicated with The Daily Telegraph 9/1/2019
After the financial crash of 2008 many bankers looked back and wondered how they became one of the most disliked industries in the country. While there were bad actors in every company, most employees were decent people just trying to make a living by changing numbers on a screen.
But not even regular charity drives and inspirational corporate slogans could cover up that the system was rotten. Now, as we come to the end of 2018 many people believe there’s something festering at the core of big tech too.
Last year will be remembered as an annus horribilis for some of the world’s leading entrepreneurs. From Congressional hearings to office raids, privacy leaks to the spectre of special taxes, companies that were once the darlings of both politicians and the media are now struggling to rally their old friends. Mostly decent and well meaning engineers, who were just trying to make a living by changing code on a screen, have awoken to find themselves at the centre of an industry that is quickly becoming as loathed as banking. Columns have predicted the demise of the biggest companies and politicians have called for their break-up and even nationalisation.
In the US, big tech stocks have fallen in value by almost $1.3 trillion from their peak last year. And while it has been a near-record year for new investment into the UK technology venture market, many so-called unicorns, from Wonga to Blippar, have seen almost all their value wiped out. While the technology sector does not pose a systemic financial risk akin to that of the banks, tech companies face a haemorrhaging in both their customers and employees unless they change.
There are plenty of reasons to argue against this negative narrative. In the social enterprise sector, where I used to work, companies often stress the need to measure the triple-bottom line of any company, that is its financial, social and environmental performance. There are many different formulations for calculating this, but by any measure the wave of internet-software companies created in the late Nineties and early Noughties have undoubtedly had a positive impact on our society.
Where once you had to take on mountains of debt to learn technical skills, online courses can now be accessed for free. New communication platforms like Twitter allow you to speak directly to your heroes and experts alike. Advances in 3D printing allow people to build prototypes of a new product for pennies, where once you would have had to risk your mortgage. And while TV stations still charge huge sums for advertising slots, you can now reach millions of customers with the click of a button through platforms like Facebook.
But much like in the financial crisis, prodigious growth and ambition is putting business plans in jeopardy. Tech companies have created powerful and affordable products without stopping, sometimes, to think about their wider impact. Facebook and Amazon, in particular, have delighted many customers, without pausing to consider. In many respects their behaviour has been similar to the cheap mortgages and credit lines offered by banks in the early Noughties. The more a company scales, the more damaging to other companies and to communities these “desirable” products become.
As a board member of many technology companies, I can see how this happens. An exciting company with a clear mission launches a product which grows rapidly. The demand for this product means the company requires more capital, and new shareholders jump in, sold on the idea of even faster growth. What was once a broad company mission becomes narrowly focused and, before you know it, the management compromising principles, even bending rules, to achieve unsustainable outcomes. This is a result of poor leadership and governance, compounded by a lack of diversity and fuelled by inexperienced new capital, seeking a home.
Tech companies need to realise that if they don’t put their houses in order, they face retrospective regulation on the scale of the MiFiD directive, the wide ranging financial reforms brought in after the crash. They urgently need to work with policymakers and strengthen their boards to make sure they are contributing to society and not just their bottom line.
This process has undoubtedly begun. Last year Tim Cook decried the “weaponisation” of personal data. Jeff Bezos has reviewed and started to improve workers’ healthcare and pay in an Amazonian-style new deal. And walkouts by staff at Google have intensified current efforts to create a more diverse and inclusive workforce. Assessing the impact and transparency of their products and internal practices needs to be top of the agenda for every entrepreneur, engineer and investment committee.
As software expands into more and more industries from biotech to robotics and manufacturing, there is a great opportunity for software companies to grow their profits. In doing so, they cannot be blind to their social and environmental impact, their triple-bottom line.
However the conversation about how they can grow responsibly, as part of the society they are in, is only just beginning. Tech companies must be part of that conversation if they don’t want to end up like the big banks in their rear-view mirror.
James Wise is a partner at Balderton Capital