What if big-tech companies became non-profits?

Microsoft 2019

(Tadas Sar, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Jonathan Wichmann, Co-founder, Wichmann/Schmidt


After years of misinformation, security breaches, abhorrent labor practices and election meddling, politicians have decided it’s finally time to regulate the major tech companies.

It’s almost impossible to think that, as recently as a decade ago, large technology companies were considered agents for democracy that would usher in an era of unprecedented transparency and civic engagement. Their devices and platforms were built (and marketed) as bastions of free expression and the unfettered exchange of goods and ideas.

Recent history has taught us that these companies’ platforms are too susceptible to bad actors, disinformation and illegal data tracking to go unchecked, however. And some of the companies that deal in physical goods have quickly developed monopolies that exploit labour, provide poor (oftentimes dangerous) working conditions and avoid billions of dollars in taxes.

Regulation of these companies seems inevitable at this point, if not downright necessary.

The inevitable question, then, is to what extent they should be regulated. Techno-utopians such as Wikipedia founder Jimmy Wales find the idea abhorrent and maintain that, despite their faults, tech companies should not be subject to government oversight, for fear of it having a chilling effect on free speech or hindering economic growth. On the other side of the debate are zealous politicians – such as US Congresswoman Elizabeth Warren, who has called for breaking up Amazon, Apple, Facebook and Google, and Margrethe Vestager, the EU’s competition commissioner, who wants to impose strict regulations on data-collection practices.

But there’s a third way, one that doesn’t involve disbanding or tightly regulating these hugely influential companies, but also ensures that these companies will fulfill their promise of benefitting society.

If tech companies are serious about serving the public good, then they should become non-profits.

On its face, this idea may seem even more radical than trying to dissolve these companies. But functioning as a non-profit will allow the tech industry to simultaneously continue its business while fulfilling its promise of serving the public good.

All the problems afflicting the tech industry stem from the industry’s focus on short-term profits. This is not the tech industry’s fault, per se, as much as it’s a function of a flawed financial system that incentivizes short-term gains, and often at the expense of long-term sustainability. These companies have operated as any would, trying to maximize revenue and shareholder value. And they’re great at it. The large tech companies mentioned above are among the largest in human history.

But all that success has come at considerable expense, namely the spread of misinformation and an increasingly large gap between the poor and wealthy. Technology has increased the wealth gap in middle- and high-income countries, according to former World Bank chief economist Kaushik Basu, and it will likely have the same stratifying effect on developing countries in the coming years.

Removing the profit motive from these companies will rid them of this pressure, however, and give them the freedom to act in accordance with their stated missions. (A non-profit is an organization whose stated goal is to promote public well-being, and typically doesn’t have to pay taxes as a result. They do, however, function similarly to business in many cases.)

“What’s really powerful in non-profits is that they don’t and do not try to create profits,” says Chris McKenna, a business historian at Oxford University’s Saïd Business School and a staunch proponent of the non-profit business model. “Instead, [non-profits] can invest for long periods of time. They can motivate highly intellectual, interesting people to work for them at reduced rates. And they can motivate people to invest in them, to literally to give them money.”

This kind of corporate structure is more common than many people realize. There are a number of highly successful, multinational corporations that are owned by “industrial foundations”, such as Carlsberg, Heineken, Ikea and Rolex. Under this arrangement, the foundation elects a board of directors that operates independently from the business. Boards members can’t be removed or replaced by anyone on the business side of the organization. And the board members’ compensation isn’t determined by the firm’s profitability. All of these features ensure the company stays focused on sustainability and long-term viability.

Opponents will criticize this idea on the grounds that it will halt progress and prevent the world economy from reaching its full potential. But those concerns are unfounded. There is no proof for-profit companies are more innovative than companies that serve the public good, and non-profits have actually grown faster than private companies in recent years.

As non-profits, tech companies will still be able to recruit top talent and create world-class devices and software. If anything, transforming into a non-profit will improve the amount of talent in tech, as people will be eager to work on projects that actively benefit society.

German automotive parts manufacturer Bosch Group, for instance, is majority-owned by the Robert Bosch Stiftung, a non-profit that makes sure the company’s business side lives up to the foundation’s philanthropic ideals. The foundation has donated more than $1 billion dollars over the past several decades to a variety of charities. And the business itself still continues to thrive.

Non-profits are so successful, in fact, that some business and marketing experts say they have an unfair advantage over companies with more traditional corporate models.

The shareholder model, on the other hand, is simply not good for the planet and its people. The Enlightened Capitalists, a new book by James O’Toole about socially responsible corporations, highlights companies that have been able to both grow and stay true to their principles. But the book also unintentionally reveals how difficult this is under a typical private company structure.

 

“The vast bulk of wealth is in shareholder-owned companies, so how meaningful are virtuous practices if they can only exist on the fringes, where the real money is not?” Bethany McLean writes in a review of the book.

Technology has always carried the promise of making the world more connected, open and equitable. If it really wants to realize that promise, its companies should ditch business as usual and embrace being a non-profit, a model that benefits us all.

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