Why the Tech Industry Should Proactively Address the Backlash Against It
The author of “The Lean Startup” weighs in on the ongoing tech backlash, and explains why we need a long-term stock exchange.
Just a few short years ago, tech companies were largely viewed as the darlings of the American economy. Occasionally, concerns about privacy, concentration of power, and lack of diversity popped up, but the voices of critics were by and large drowned out by techno-optimists, not to mention a public eager to buy the latest gadget or log on to the newest platform promising convenience and connectivity.
These days, the media and the public at large is singing a different tune. A quick Google search of “tech backlash” produces a seemingly endless supply of recent pieces about the nosedive that the tech industry has taken in the court of public opinion.
From The Guardian, January 2018:
From Vanity Fair, November 2017:
And from NewCo Shift, a bit ahead of the curve in January 2017:
In the past two years, Apple and Google have fallen from ranks of 2nd and 3rd in the Harris Poll Reputation Quotient Study to 29th and 28th. “If you look at the way this backlash is unfolding , we are bungling it at every step,” said Lean Startup author Eric Ries in a recent interview with Reinvent.
“Why are we giving ground grudgingly, instead of leading the charge and doing what’s right?”
He talked about the classic business school case of the 1983 Tylenol recall, which The Christian Science Monitor refers to as “arguably the most significant recall in US history.” After bottles of Tylenol laced with cyanide killed seven in the Chicago area, manufacturer Johnson & Johnson recalled 31 million bottles, losing around $100 million in the process.
Tylenol came out of the scandal as the good guys, Ries says, and established a protocol for nationwide recalls. He urged the tech industry to take a page from Tylenol’s book when it comes to address mounting concerns that consumers have about transparency, diversity, and privacy. The tech industry should have predicted these challenges, Ries maintains. “Why are we giving ground grudgingly,” he asks, “instead of leading the charge and doing what’s right?”
Beyond the backlash faced by the tech industry, our national economy is rife with problems, including the concentration of power. The number of public companies in the U.S. is half what it was 20 years ago, Ries points out. He attributes this precipitous decline to three factors:
- Private companies tend not to go public anymore, or to significantly delay their IPOs, meaning there’s much less stock available to regular people
- There’s more private equity—which Ries refers to as “shares of the far-future profits of a company”—available than there has ever been before
- Consolidation has increased tremendously, and mergers and acquisitions happen much more frequently
Ries doesn’t believe that these trends were shaped by the malicious intent of bad actors, but he does think that they represent a fundamental problem of prioritizing short-term thinking over long-term thinking. Our current system distracts companies from fundamental value creation, Ries says.
Rather than building sustainable organizations that serve customers, employees, and shareholders, they focus on maximizing the profits of shareholders, often at the expense of the other two parties. Ultimately, Ries argues, investors lose out when companies are distracted from their fundamental mission of serving customers.
“Growth through financial engineering is much more common now than growth through organic innovation in the public markets,” according to Ries, and when organic innovation lags, our economy as a whole suffers.
Ries’s newest project, The Long-Term Stock Exchange (LTSE) aims to shift the balance of power away from short-term traders. Short-term traders are like tourists, Ries says, and while they bring capital and value to a region, they shouldn’t get to vote for mayor. The LTSE regulates managers & investors at the same time, and allows companies to dual list on other stock exchanges, as long as they agree to abide by the LTSE’s parameters around focusing on long-term economic viability. The standards set by LTSE listings, according to the company’s website, include the following:
- Long-term voting — Give true long-term holders a greater say in corporate governance
- Executive compensation — Reduce misaligned incentives around short-term goals
- Long-term disclosure — Focus the narrative on the long-term potential of the business
- Long-term focused board — Help prioritize long-term focused product and strategy discussions in the boardroom
- Long-term stakeholder policies — Make it easier for investors to recognize companies for addressing environment, community and diversity
One of the goals of the LTSE is to reduce the risk of entrepreneurship in order to enable more people to become entrepreneurs. Another goal is to reduce inequality, which Ries refers to as a drag on the economy. Non-essential employees at today’s companies have no ladder of opportunity into management, Ries says, alluding to the trend of many non-essential positions being outsourced to contract workers who have zero or limited options for upward mobility within their organizations.
Part of addressing the mounting tech backlash is acknowledging that tech does more than just solve problems—sometimes it creates them, or exacerbates them. As tech companies mature, and their influence on our economy and society continues to expand, it’s time for them to realize that fixing things is often more valuable than moving fast and breaking them.
“We’ve been given this incredible opportunity to build a more just future,” Ries says. “What are we going to do with it? What’s our plan? I hope we start to take it more seriously.”
