Hi. Can here. Today, we are talking about taking sides when things matter.
Values of your Shareholders
I know it feels like a few decades past now, but just a few weeks ago, we were discussing shareholder value. Well, not us, but a bunch of CEOs were. They got together, supposedly around a round table, and decided that we should steer away from optimizing for shareholder value to something more encompassing. You could say more of a 360 review, even. Businesses should take into account their impact on all the stakeholders, they said. Communities matter! Employees matter! Customers matter! Even the suppliers matter! Everyone gets a car!
I joke, but I don’t hate it. There is a Warren-esque feel to this enterprise. It feels warm, fuzzy, if not a bit wonky. But at the same time, like the hosts of Capitalisn’t and many others, I wondered if it’d actually change anything in the long run. The obvious criticism is “when everything matters, nothing does”. But, I am trying to be optimistic. The fact that such language is adopted (and hopefully not just co-opted) by the fat cats is good news, in my book.
Yet there are issues. For starters, accountability is a big problem. How do you measure performance along the goals you’ve set in a system like this? More importantly, who can kick you out? It’s somewhat dark, but it’s clarifying way to look at it. Accountability is not just bean counting, it’s really about pink slips.
Yet, it can feel a bit fatalist. I like more philosophical musings at times. A different and better way to think about this is allegiances. What is on top of your mind, when you make an ad-hoc decision? When there’s not enough data, and you need to listen to gut, what do you feel like is the right call? Whose side are you on? I don’t want to go full “us versus the terrorists” here, but some decisions are clear cut!
Something something Facebook
For example, Zuckerberg last week made an interesting point in a leaked (I want to believe it wasn’t, but it probably was) Q&A session that he considers the rule of law somehow above anti-trust regulation. If that sounds mechanically wrong and utterly confused, yes, it is because so.
My co-author Ranjan had a take last week about this, how Zuckerberg tries to other those who are upset by his firm’s actions. The weird undertone that bothered him (and me) was that Zuckerberg was co-opting “rule of law” as a weapon against Warren’s agenda. I know we are now used to “law” being disconnected from any presidential exercise, but my guess is if Warren becomes POTUS, she’ll enforce her policies via the rule of law, not by, say, twitter or late night press releases.
Meanwhile, it turns out America is not the only country that matters anymore. I, the token foreigner on this newsletter, should know this. Tech companies have been long aware of these issues (and I wrote about them), but the NBA now got a good reckoning too. Daryl Morey, GM for Houston Rockets, one of the most popular NBA teams in China (a weird thing to say, really) wrote a tweet supporting the protests in Hong Kong.
Unsurprisingly, lots of Chinese fans got upset, and the NBA’s main broadcasters and streamers in China cut their ties with the team. The team briefly meandered about firing Morey, and the league, which generally behooves itself the most woke (wokest?) of all professional sports leagues, had to put out a press release kowtowing to the Chinese market’s demands. Obviously, it’s pretty hard to tell where the market ends, and the state begins in China. You could paraphrase this as “Houston Rockets, and the NBA succumbed to Chinese pressure” and you’d be more right than wrong.
This isn’t very new, really. Max Read says, “‘Gap Inc. respects China’s sovereignty, and territorial integrity’ runs through my head sometimes like a line from a poem” while pointing to the time companies ranging from Mercedes-Benz to Marriott succumbing to similar Chinese demands in ways. This has been going for a long time. There are so many examples that I am sure by the time you get through this list, there will be more added.
Corporate Politics is now Politics
I don’t love this, but here’s the truth. In a world where we outsource much of our political activism to corporations, what companies say and do matter as much as, if not more, than our elected leaders. As consumers, we pressure companies to do the right thing, and they try to oblige. Sometimes, as Ranjan previously pointed out, companies see this as a way to actually buy in some leniency by leading the way in activism and hope that we also tag along, bringing with us our consumer preferences.
The NBA thing obviously feels different than Marriott sacking a line manager. It’s not America’s favorite pastime, but still a big one. It literally reads “National” Basketball Association, as opposed to, say, “A private league of teams, some of which have owners that are not American”.
You can argue this two ways. The NBA is (largely) a private enterprise, and so are the teams. They are free to make money however they want around the world, and they aren’t strictly beholden to Western ideals such as liberal democracy. They are, in other words, only accountable to their shareholders (hah!), and if Americans did not want it to be making money abroad in authoritarian regimes, they should have told them so. There are tons of industries with such restrictions. Some businesses are not allowed to operate in certain countries, and certain companies (and industries) cannot have shareholders from other countries. So, maybe the NBA is off the hook?
It sounds right, academically, but doesn’t sit well emotionally. To many people, the NBA is as American as cherry-pie and guns in schools, and we should hold it to a different standard. The NBA should Do Better. It’s not that we want the Harlem Globetrotters to trot the globe and promote democracy, but we should at least expect a bunch of rich people to hold the fort when they get chided by authoritarian regimes. This, to me, is the right way to frame this.
American companies prosper outside of the US, thanks to the rule of law in America. And those rules and regulations mainly derive from the principles of liberal democracy. You can make the argument that China is now a flourishing economy without a liberal democracy. But, by any measure, it’s still a poor country whose GDP per capita is dwarfed by significant parts of the democratic world. And while we do want companies to make money, obviously, it’s not that the only thing we want.
We also want to live free —and, or die, if you are from New Hampshire—. Regardless of your feelings on Chinese values versus American, you need to realize one thing: You can’t say in China that you want freedom without facing major repercussions. If you are an American, it’s a good argument for why we should at least hold our ground when someone on our side says that they want freedom for others too. It’s literally the least we could do. Just, you know, to not concede, when someone challenges our own core beliefs.
This is going back to the accountability thing a bit. The point of freedom isn’t to be able to say or do what you want to say or do. It’s also being able to take action without fearing the consequences. There is supposed to be no chilling effect. For example, you could, in America, decide that it’s not your job to protect the southern border and refuse to do business with your government. There are exceptions to this but that’s a far and few in between. Generally, you are on your own.
This is a good thing. You can refuse to be part of a government contract. Or you can be selective too; you can sell your services to one part of the government, and decide that the workings of some elements are problematic, and choose to opt-out. It’s all part of the promise of free enterprise. You are free to do whatever you want, and not do whatever you do not want.
“Flame of the West”
Look, I bring this up because last couple weeks, there was this flurry of marketing activity as several Silicon Valley venture firms went to fund Anduril, a boutique defense contractor that builds drones, and sentry towers, and I guess, some sort of “AI” that ties the room and all these pieces together. The fact that the company was founded by Palmer Luckey, who was ousted from Facebook after details of his funding of pro-Trump troll farms came to light did not help the optics. I am assuming that Luckey is supposedly buddies with (according to this Bloomberg piece) with Holocaust deniers did also not come up? I don’t know, really.
So, here’s my personal view: If you have to argue that you must invest in a defense contractor because that’s the patriotic thing to do, you may not fully get what free enterprise means. I mean, sure, you can feel really passionate about the defense industry and think that some investment in modernization might mean savings in the long run. That sounds a bit more McKinsey than G.I Joe but it does pass some academic muster.
But again, emotionally, at least for me, doesn’t sit well. Part of is that I do not like it when we pretend that these decisions aren’t based mainly on future free cash flows, and not much else. Also, while the Anduril’s founding team is more than a single person, it’s also hard to get past the antics of Luckey,. It’d be a tough sell to anyone that he is less interested in democracy as he’s interested in keeping America’s southern border more locked up than less.
And that, to me, is the real issue. As a foreigner who has immigrated to the US, I do believe in fewer borders, not more. I believe in less military spending, not just in terms of efficiency but in terms of less militarization overall. It’s okay if we disagree on this, but I don’t think America haphazardly projecting its military might all around the world last few decades has been good for America either. The famous phrase “United States is an an insurance company with an army” comes to mind, while also pointing out the copious regional conflicts people around the world have had to suffer.
I am lucky to have been born to a stable family in a relatively stable country. By some virtue and a decent amount of luck, I made my way to the US and now plan to live here, at least for a while. I am privileged enough to make my decisions based what I think is important to me so that I can defend them with integrity. This isn’t to say I don’t post-facto rationalize things here and there, but largely, I want to and do live my life on a path that follows a coherent thread. Liberal democracy, free enterprise, live and let live, they all sound about right. It would be nice if America, with all its business and thought leaders, did the same. Otherwise, what are we even doing here?
Previously, On The Margins
Taboola and Outbrain
You might have heard that Taboola, the famous purveyor of chumboxes underneath your favorite news pieces bought Outbrain, another famous purveyor of chumboxes. Ranjan previously went on a deep dive one of those boxes, seeing where each ad leads to. He’s still traumatized, but it’s a good read.
Commission-free Trading is Now Hip
Charles Schwab and E-Trade both announced they are dropping commissions on their stock trading. They never really made much money from them, but it’s interesting how Robinhood changed the game here. However, as The Margins’ resident economist guest writer Andrew Granato points out, this may not be a good thing for individual traders.