Understanding The Dark Side Of The World’s Most Valuable Firms

by Steve Denning

WASHINGTON, DC - JAN 31: (L-R) Jason Citron, CEO of Discord, Evan Spiegel, CEO of Snap, Shou Zi Chew, CEO of TikTok, Linda Yaccarino, CEO of X, and Mark Zuckerberg, CEO of Meta at the Senate Judiciary Committee The committee heard testimony from the heads of the largest tech firms on the dangers of child sexual exploitation on social media. (Photo by Alex Wong/Getty Images)

South Carolina Senator Lindsay Graham yesterday accused five CEOs of leading social media firms of having "blood on [their] hand." The 3.5-hour Senate Judiciary Committee hearing became the lead story on national news channels, Despite the unanimous bipartisan condemnation, this marks the eighth Congressional hearing on the matter with no legislative action yet taken.

Just as the private sector has been slow to learn from the management innovations of the world’s most valuable firms, so the public sector has been slow to fulfill its regulatory responsibilities to provide guard rails and contain wrong-doing in this fast-growing part in the economy. It’s much easier to hold headline-grabbing Senate hearings than to pass effective regulations.

Getting the right balance between learning from the positive contributions of the world’s most valuable and fastest growing firms and requiring them to accept their wider responsibilities to society remains a challenge. Readers of my article, “The Management Paradigm Driving The Most Valuable Firms,” made constructive suggestions on areas where leading firms need to do more.

1. The World’s Most Valuable Firms Are Not ‘Perfect Management Models’

Agilist Phil Thompson asked whether it is right to regard the most valuable firms as “perfect management models.” The answer is no. All of the world’s most valuable firms are flawed in various ways. My article presented the financial facts about the firms and described key elements of the common management pattern that had enabled them to grow so large and so fast. We can learn from these innovations, while also urging the firms to continue to improve both their mental models and their processes as good corporate citizens. With great power comes great responsibility.

2. The Treatment Of Lower-Level Workers

While the most valuable firms have often creative innovative approaches for senior executives and knowledge workers, executive coach Nigel Thurlow drew attention to the much more regulated approach to lower level employees. He cited Beth Gutelius, research director at CUED: "The survey data indicate that how Amazon designs its processes — including extensive monitoring and the rapid pace of work — are contributing to a considerable physical and mental health toll, including injuries, burnout and exhaustion.” CBS News reports similar issues in Amazon’s fullfilment centers.

Critics shout, “How can you praise Amazon when it is treating its workers so badly?” The answer is that we need to learn from these firms’ positive accomplishments while condemning any anti-social behavior that we observe.

3. ‘Aren't The Most Valuable Firms Really Just After The Money?’

Agile consultant Quinton Quartel writes “How can we justify putting Satya Nadella on a pedestal when MS is making more money than ever and still laying people off?” Here too, we need to keep things in perspective. Microsoft has added more than 100,000 jobs to its workforce since Satya Nadella became CEO in 2014. The recent, relatively small job cuts following the acquisition of Activision Blizzard need to be seen in this wider perspective. Leading firms should also be setting an example in terms of ensuring that all workers have a living wage.

4. ‘The Executive Compensation In these Firms Is Excessive’

It is frequently suggested that the executive compensation in the most valuable firms is excessive, particularly in comparison to the lowest-paid workers in the firm. This is correct.

However, the issue of excessive executive compensation is not peculiar to the most valuable firms. The last half century has been a period of ‘aberrant capitalism’, in which explicit greed became the main driving force. In this period, the normal functioning of capitalism was subverted to channel most of the gains to shareholders, executives, and their financiers at the expense of other stakeholders and society. The result has been increasing inequality, pervasive short-termism, self-dealing by executives, and declining social cohesion as explained in this article, and in my book Reinventing Capitalism in the Digital Age.

In one sense, the executives of the most valuable firms are part of the generic problem of current-day capitalism. Yet it is no excuse for the executives of these firms to claim that they are "no worse than most other large firms." As the most valuable firms in the world, they have become de facto exemplars for all firms, and inevitably become the main target for attacks on the generic problem. If they don’t show better behavior they will suffer the consequences.

This week’s decision of a Delaware judge to cancel Elon Musk’s $55 billion compensation package awarded by Tesla's board of directors is a sign. The judge held that Musk and Tesla's directors had breached their duties to the maker of electric vehicles and solar panels, resulting in a waste of corporate assets and unjust enrichment for Musk. The judge accepted shareholders’ lawyers’ arguments that the compensation package “was dictated by Musk and was the product of sham negotiations with directors who were not independent of him.” The decision is a warning.

5. ‘There Is Nothing Firms Can Do About Mindsets’

Other critics of this article suggest that the distinction between mindsets and processes is meaningless. “There is nothing we can do about mindsets. They are personal to the individuals. The only thing that matters is the behavior that ensues. That is what should be monitored and measured.”

This of course is a reiteration of the Frederick Taylor philosophy that “the system” must come before “man”. We now know a great deal about how subjective phenomena such as mindsets, attitudes, mental models, values, and culture emerge and also about how they can change. Denials of the validity of such an understanding can be a surreptitious way of arguing for “Scientific Management,” or a cover for maintaining implicit mindsets that would be unattractive if made explicit, e.g. a sole focus on making profits.

6. ‘Should Firms Do More For Social Goals And The Environment?’

Should these firms do more for social goals and the environment? Yes, of course, they should. During yesterday’s hearing, Meta CEO Mark Zuckerberg spoke to dozens of parents of online child sexual exploitation victims. “I’m sorry for everything you have all been through,” he said. Yet he did not say whether Meta’s platforms had contributed to the suffering—merely that Meta was “making efforts to avert such harm.” This ignored the committee's evidence that Meta executives had known of the problem and had rejected staff calls to take remedial action.

Mark Zuckerberg, CEO of Meta, speaks to victims and their family members as he testifies during the US Senate Judiciary Committee hearing (Photo by Brendan Smialowski / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

Such behavior can lead critics like Rebecca Solnit to argue in the London Review of Books that Silicon Valley executives have “used their wealth to undermine its diversity and affordability, demonize the poor, turn its politicians into puppets and push its politics to the right.”

If executives of the most valuable firms do not take stronger remedial action, and avoid even an appearance of unethical behavior, they risk being permanently branded as “the Robber Barons” of the 21st century and suffer steadily more severe economic consequences.

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Original article from Forbes, written by Steve Denning and authorized to be published in the World Management Agility Forum by Steve Denning.

Original Article: https://www.forbes.com/sites/stevedenning/2024/02/01/understanding-the-dark-side-of-the-worlds-most-valuable-firms/

Steve Denning February 7, 2024
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