Having thrown privacy and consumer protection overboard long ago, Google, in 2018, officially removed its best-loved maxim, “Don’t be evil,” from its code of conduct. Arguably, the company could no longer ignore the contradiction between self-declared ethics and the relentless pursuit of profit. (In only the final quarter of 2019, Google booked $46 billion in advertising dollars and third-party sales of user data.) And Google is not alone.
Recently, Slate published a list of the 30 most “evil” tech companies. Noting that these companies produced “ills that outweigh conveniences,” Slate’s list flayed the tech giants. This article—alongside recent books like Rana Foroohar’s Don’t Be Evil and Lucie Greene’s Silicon States—illustrates that the very existence of companies like Uber, 23andMe, and Airbnb relies on the exploitation of users and workers. And then there’s the rampant sexism and racism across what Emily Chang calls tech’s “brotopia.” Goodbye, tech exceptionalism; hello, “techlash.”
Skewering Google with its own maxim, Foroohar points out in Don’t Be Evil that Facebook, Amazon, Apple, Netflix, and Google (the FAANGs), as well as Baidu, Alibaba, and Tencent (the BATs), don’t even innovate anymore, nor do they generate new jobs. Such justifications might have lent their profit seeking and mistreatment some social value. Instead, the BATs and FAANGs of Big Tech mostly focus on keeping people online as much as possible and monetizing their attention.
Perhaps more importantly, as Lucie Greene shows in Silicon States, the amount of money funneling between San Francisco and Washington has correspondingly increased. The top three Big Tech companies each spent around $15 million on lobbying in 2019 (to compare: Boeing spent only $13 million). No wonder a countermovement—the tech backlash—seems to grow bigger and bigger.
Tech—even though its pace of innovation and job creation has rapidly slowed down, even as it exploits people and grabs attention—is very much in power. So, clearly, tech cannot purely be seen as a force for good. At least, not anymore. But could tech still be bent toward better purposes? And if so, how?
Criticism has focused on Big Tech and politics; what hasn’t yet been discussed in depth is the role of venture-capital investors.
Tech’s profits are not purely based on selling its often world-changing products and services; they are also a result of the industry’s lax morality and its political might. Like Google’s abandoned motto, this, too, is a contradiction: Big Tech leans on libertarianism, even as it built monopolies and spends immense sums on lobbying politicians and administrators. Since the Obama administrations, Silicon Valley and Capitol Hill have spun the revolving door at a furious clip.
Critics like Foroohar and Greene, along with labor and social activists and academics, have disrupted tech’s status quo—the “don’t be evil” persona, the exchange between tech companies and lawmakers—by forcing tech abuses into the national conversation. This criticism has focused on Big Tech and its involvement in politics; what hasn’t yet been discussed in depth is the role of venture-capital investors.
These critics’ revelations punctured what was, among start-up investors, already perceived as an overinflated bubble. Since 2008, explains Foroohar, there has been “too much money chasing too little value.” Unicorns—those companies who were supposed to defy reality with the profits they bring to investors, including the likes of Uber, WeWork, Casper, and Airbnb—proved to be mere nags, with IPOs that have failed, been postponed, or been canceled altogether.
Most tech companies, in fact, aren’t inflated with immense profits. Instead, many of these companies have been living on borrowed time: that is, off big dollars loaned from investors. Swelled by money floating freely in a low-interest-rate environment, venture-capital behemoths on Sand Hill Road, as well as buyout firms and some risk-embracing family offices, were happy to foot the bills of high-flying new tech start-ups over the last decade.
Possibly, not anymore. The private-funding fizzle, accelerated by the COVID-19 crisis, is likely to make investors insist on profitability again, on supporting companies that were coined “zebras” even before the pandemic hit.
Meanwhile, seasoned venture capitalists like Bill Janeway criticize the unicorn bubble, which has been fueled by what some call “tourist investors,” such as SoftBank’s Vision Fund and others descending from asset management into risky venture capital. SoftBank—the supposedly almighty Japanese investor, fueled by Saudi money—was one of the main contributors to absurd multibillion-dollar valuations for companies without profit-generating products. It is one of the biggest losers now.
All this will, if not completely come to an end, be much less common with the increased pressure COVID-19 puts on companies. Investors, who view it as in their financial interest to make changes, are also exerting pressure on tech companies to find a better way.
What else can drive better-behaved tech? One answer, perhaps, is government intervention. Some of this is already underway, including: increased user-privacy protection and massive fines for violations, such as the $5 billion penalty Facebook incurred in 2019; antitrust lawsuits, such as an ongoing case against Google by 50 (!) different US attorneys general; protection of gig workers for companies such as Uber, which is the aim of new legislation in California; a new tax for digital companies in France; a ban on facial-recognition software in San Francisco. These are just a fraction of the new government interventions that might happen.
It sounds promising. But, in fact, piecemeal regulations—a couple of billion-dollar fines for Facebook here, a ban on a specific technology there—are unlikely to change the overall course of existing firms or influence the commitments of the rising generation of tech companies.
Still, law and regulation can curb some of tech’s worst abuses. Such government interventions, in Foroohar’s estimation, create a “framework for our next phase of economic, political, and social development.” But protecting citizens and other economic actors simply isn’t enough to make better tech.
Consumers, new founders, and investors—together—just might be enough. Take, for instance, “the Greta effect.” Sustainable fashion, reductions in animal-product consumption, electric mobility, and (real) sharing-economy services are all growing. But customers don’t only care about better products; they care about better companies.
A growing number of consumers, founders, and workers want tech companies to be better governed while also being better in the world.
A new generation of start-up founders (and employees) have noticed. At least since 2018, social enterprises—businesses focused on inclusive growth and social impact as well as employee well-being—have enjoyed a “rapid rise,” according to Deloitte’s Human Capital report. Start-up founders are subjecting their investors to evaluation, too, the New York Times reported in 2019.
An organization called Founders of Change has since grown to more than one thousand entrepreneurs, all campaigning to increase social responsiveness—promoting, for instance, diversity within their companies and investor base. In a similar way, many employees are becoming more and more picky about whom they work for, often based on corporate values around misinformation, bias, and inequity. A growing number of consumers, founders, and workers want tech companies to be better governed while also being better in the world.
New markets attract investors; indeed, many investors are, seemingly, acting already. Behemoths like Carlyle, Bain, and KKR, as well as a number of hedge funds, have published extensive “ESG strategies” in the last 12 months. Many organizations have reserved parts of their capital and hired specialized teams to focus on these efforts. ESG investments—which consider environmental, social, and governance issues, as well as financial statements—are not new. They date back to the Socially Responsible Investment Movement, a 2004 UN initiative that produced an initial report entitled “Who Cares Wins.”
But, despite their newfound popularity, the goals and rules of ESG investment are opaque. They might include a focus on climate change, employee well-being, and clean supply chains; or they could more explicitly impose restrictions, such as divesting from fossil fuels and weapons. In determining how best to handle such environmental, social, and governance issues, individual actors are able to broadly define many of their own rules. This fuzziness (which is similar to that of the corporate social responsibility movement, or CSR) already hints that these initiatives could turn out to be a hoax.
For example, oil companies—and, before them, tobacco giants—employ what Ethical System’s Alison Taylor recently called a “split-screen” approach: constructing a “facade” of white- or greenwashing. For Coca-Cola, Taylor reports, this means expressing concerns about obesity in the company’s ESG report but continuing to sell cans full of sugary beverages and to lobby against sugar taxes.
For a buyout fund like Bain Capital, this fuzziness translates into setting up a small ESG-focused fund, even while continuing to make most of its money by buying cheap companies, extracting cash reserves and valuable assets, and selling the remainder for as much as possible. For KKR, which proudly announced a $1.3 billion ESG fund earlier this year, this new, feel-good kind of undertaking makes up less than one percent of its total assets under management.
A market shift may be underway, however—one instigated in part by the investors’ investors, the so-called limited partners. LPs include family offices, pension funds, high-net-worth individuals, foundations, and (university) endowments. These entities provide the asset managers—hedge funds, buyout firms, and venture-capital investors—with the capital they invest. The Princeton endowment—mostly managed by PrinCo—or the Ford Foundation are among the most notable of these LPs in the US.
As the investors of the investors, LPs can—and increasingly do—flex their muscles. Both individual LPs and groups of them, such as the 30% Club, are starting to exert pressure around issues such as gender diversity and inclusion, as well as around enforcing ESG guidelines. The Mellon Foundation, for instance, has taken up diversity as a value in itself across its grant and investment portfolio. Overall, awareness of what PwC calls “responsible investment” is rising rapidly; LPs want to invest in “good corporate citizens” rather than pirate investors.
These attitudes are also slowly trickling down to venture-capital investors, filtering out to the next generation of tech companies. Investors aligned with such values, like Obvious Ventures, raise money from the LPs, which are pushing this agenda because they see a big market opportunity. Being better can pay off, if—that is—those paying want the world to be better.
Being good, whether by increasing diversity within venture capital or improving the governance of companies more broadly, can boost financial performance. Increased diversity in a team, for instance, can increase creativity and innovation, margins, and revenue. The positive material impact of diversity has also been proven for venture-capital investors. The business case for sustainable investments is strong—and even more so now, with the impact of COVID-19.
The current upheaval of COVID-19 may lead more investors to value better-governed companies that have a positive social impact. The economic downturn—which is expected to be worse than after the 2008 financial crisis—will discipline companies and investors alike. Profitability over shiny brands, real problems over excessive luxury, sustainable growth over short-term shareholder value—the current crisis could accelerate these reprioritizations.
If so, this shift will be in line with a big push initiated in 2019 by venerable businesspeople at the Business Roundtable and the Financial Times: toward stakeholder capitalism benefitting not only the owners of companies but also employees, customers, the supply chain, and the environment.
Tech doesn’t have to be bad; it can put users first, solve problems that a wide range of people care about, and attend to stakeholders, including the environment. But it will only stop being bad if the industry—and, crucially, those that fund it—decides to make it so. Should that decision be made, tech might have a chance. After all, solving problems is what the tech industry was founded to do, in its techno-utopian beginnings. Today’s techlash might just herald a return to those roots, if at least some of these actors—from founders and LPs to consumers and regulators—keep their word.
This article was commissioned by Caitlin Zaloom. 
