Why Silicon Valley is not Our Friend and How It Could Befriend Us

Amazon, Apple, Facebook and Google are not our friends as highlighted in the New York Times Sunday Review. The truth is that the ultimate core value of Amazon, Facebook and Google (Alphabet), which are Delaware corporations, and Apple, which is a California corporation, is the imperative to maximize stockholder welfare. This doctrine, which is known as shareholder primacy and is embedded in the prevailing corporate law of Delaware, is the invisible moral compass that drives the behavior of our public companies.

These tech giants may talk a good game about pursuing loftier purposes and being our friends, but at the end of the day, they are as efficient about maximizing profits for their stockholders as any shareholder primacy based public company. Although they may be incorporated in US states, they have largely transcended the nation state and owe no fealty nor allegiance to any sovereign, gladly selling their corporate presence to the jurisdictions that offer the lowest tax rates. They are not evil companies: they simply play the current corporate game of maximizing stockholder welfare extremely well and have become transnational monopolies in the process.

As long as shareholder primacy is their de facto conscience, these companies cannot be anything more than our false friends. Under shareholder primacy, corporations are amoral at best and anti-social at worst.

As noted by Leo Strine, the prevailing Chief Justice of the Delaware Supreme Court, if we don’t like how the corporate game is currently played, we need to change the rules. As a society, if we want corporations to truly act as our friends, they need to operate in a corporate form that not only extends corporate responsibility to stockholders but also to society at large. As Justice Strine has pointed out, the benefit corporation is such a form. It begins to endow the corporation with a social and environmental conscience that transcends and includes the usual limited pecuniary one.

If these tech giants truly want to befriend us, they have the option to become benefit corporations. As Delaware public benefit corporations, Amazon, Facebook and Google (Alphabet) would make a legal commitment to operate in a “responsible and sustainable manner” and be required to act in the “best interests of those materially affected by the corporation’s conduct”, which would include us, and, for example, the use of our personal data. As a California benefit corporation, Apple would make a legal commitment to “provide a material positive impact on society and the environment” and would be required to consider the impacts of corporate action upon the interests of us customers. In addition, these companies could enumerate the specific public benefits they seek to create in their charters as kickstarter has done.

These companies would instantly become the global leaders in corporate governance if they became benefit corporations. They would be more likely to be our friends and act in our best interest. Finally, they would be more likely to fend off the inevitable anti-trust actions that are coming their way if they had the benefit corporation’s embedded purpose of creating public benefit in addition to the purpose of taking care of stockholders.

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