If Snap were a country, it would make it into the largest 100 economies in the world. The company, which owns the instant messaging app Snapchat, floated on the New York Stock Exchange on Thursday and is now valued at more than $28bn. It is an eyewatering sum for a company started just five years ago by two founders, still in their 20s, and which lost $514m last year alone.
Snap’s valuation is a sign of the economic times we live in. Investors have been piling in behind newly listed tech companies with an enthusiasm not seen since the 1990s dotcom boom. They take huge gambles that sometimes, as in the case of Facebook, pay off handsomely, but which sometimes, as with Twitter, make for a disastrous bet.
While it is investors who pocket the gains and bear the losses, these gambles are a worrying symbol of what gets valued in the global economy. Snap is not a company employing large numbers of people or one that adds huge new productive capacity to the economy. Snapchat allows people to send disappearing photos and videos, one of a multitude of ways we now have to communicate with each other. It is the mark of an economic ecosystem that is incentivising more and more energy to go into designing platforms such as Facebook that cannibalise the creative industries, by consuming ever-increasing proportions of digital advertising revenue.
Snap’s IPO also highlights the increasingly unassailable power of tech founders. It is the first company ever to go public and offer its shareholders precisely zero voting rights, an arrangement the head of corporate governance at one of the world’s largest pension funds has called a “banana-republic style approach”.
Snap’s founders argue this will give them the freedom to build the company for the long term, without getting bogged down by the tedious accountability faced by most publicly listed companies. There is no doubt that Anglo-American corporate governance, dubbed “quarterly capitalism” by its critics, can undermine long-termism, as the asset managers who dominate company AGMs chase short-term dividends over long-term economic value. But Snap’s answer sets a dreadful precedent for corporate governance. It is crazy to think the solution is to ditch accountability to shareholders altogether, concentrating ever more power in the owners of big companies.
Quite the opposite: the right answer must be to reform corporate governance so that companies are more accountable to their other key stakeholders: their employees and their customers.
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