During the wildfires of 2019 I realized that I failed a decade-long quest.
In 2009 I set out to have a large impact on climate. I created a study called, “Gigaton Throwdown,” that looked at the question of what it took to scale up new technologies to have an impact on climate. One of the conclusions at the time was that electrification of cars could not achieve scale impact within a decade, while solar, wind and efficiency could.
Efficiency! Since personal automobiles are only used about 5% of the time, I thought perhaps we could get a gigaton of reduction in ten years by re-thinking how we use automobiles.
I set out to increase the efficiency of fossil-fuel cars. I incubated Getaround, the peer-to-peer carsharing company and passed a law in California enabling the rapid spread of that product. I co-founded Sidecar, which invented ridesharing as we know it today. All that innovation was designed to have a climate impact.
It did not work.
Those ideas which grew into all sorts of businesses around the world are now worth hundreds of billions of dollars. They have not achieved any carbon reduction. It is possible they’ve made the problem worse.
Turns out,when things get more efficient, we tend to use more of them and we adapt them for new uses. It’s called the rebound effect. Ridesharing and carsharing increased the demand for taxi-like services and for rental-like services. It was adapted into instant delivery of everything from Thai food to staplers and diapers. Most of us have more delivered to our door today than we did ten years ago in 2011. The innovations changed other behaviors, too. Neighborhoods like the Mission in San Francisco turbocharged its rate of gentrification once it was easy to book a ride or a car for the weekend.
I realized that when it comes to climate solutions, efficiency does not work.
Tomorrow at 8am PST I’ll tell you how we are responding to the cold hard fact that you can’t get a gigaton from gig work.
If you have been following the development of the mileage purchase agreement (MPA), you already know that the lifetime cost of an electric vehicle (EV) is lower than a similar fossil-fuel car. The advantages get better with higher mileage because the cost of a vehicle is a combination of the up-front cost and the ongoing costs. When a car is driven a small number of miles the biggest expense is depreciation of the up-front cost. Fuel and maintenance costs dominate the equation when you have a high-mileage car. EVs cost hardly anything in fuel and maintenance. That is why EVs really shine with high mileage.
When I ran the Spring Free EV contest, one of the contestants uncovered a unique tax advantage of owning an EV in a business. The IRS allows the owners of vehicles used in a business to account for their expenses in a simplified way. A taxpayer can account for the expense by just multiplying a standard amount times the number of miles driven in the year instead of itemizing each expense. In 2020, that amount was 57.5 cents per mile.
Let me walk you through why this is a big deal and amplifies the economics of electric vehicles.
The standard mileage deduction (SMD) is an average of cars and light trucks in the US. Those vehicles are dominated by fossil-fuels and the 57.5 cents is a good reflection of their costs. Electric vehicles, however, are far cheaper over their lifetimes than gas and diesel-powered cars and trucks. They are about 15-35 cents per mile in total costs. The implication is that when you do you books for the IRS, you get to deduct a bigger expense (57.5 cents) than your actual costs since EVs are so cheap.
The first big deal is that you get to keep more of the revenue from your car-based business. If you are a gig driver or a pharma sales person who relies on their car to make money, that can mean a lot of money per year.
The second major implication is that you could be generating a paper loss in your car-based business and that loss can be used, in some cases, against other income.
The net impact is you get a huge benefit from operating an electric vehicle instead of a gas or diesel.
Let’s walk through an example to make it clear.
Supposed you own a used Chevy Bolt that costs you $17,000 up front and travels 30,000 miles a year. Let’s assume the business generates $14,000 per year in revenue :
Annual gross revenue: $14,000
Reported expense ($.575 x 30k): $17,250
Reported loss: ($3,250)
So for tax purposes, you report a loss of $3,250 due to the SMD. Meanwhile, your actual expenses would be closer to 15 cents a mile or $4,500. If you used your actual expense receipts and depreciation calculation, you’d report a gain of $9,500. Depending on your tax bracket that would cost you 20-50% in taxes – it would be $3,325 if you use the median of 35% – which means you saved $6,175 in taxes.
But wait there’s more! 🙂
You generated $3,250 in losses because of the SMD. If you have other sources of income that qualify (e.g. rental income), you can probably deduct that loss from that income, reducing your taxes on it even further. At a 35% tax rate, the loss is worth an extra $1,138 in your pocket and not in the tax man’s. That is a total of over $7,300 in benefit per year!
Now, what if this had been a typical gas-power car or truck? You could use the same SMD, but you real expenses would be about the same (lower if you have an efficient beater and higher if you have a new gas guzzler). Let that sink in. Instead of a paper loss you would have actually lost money on your business. That loss would still probably be useful to offset other passive income, so the net tax advantage of an EV is $6,175. Of course, if you have an efficient 3 year old car, it will also be cheaper than $.575 per mile, but the biggest advantage comes through an EV.
If you are a rideshare driver, a regional salesperson, a carshare owner, or other profession that relies on your car to make a money and you do a lot of miles each year, you can save a lot of money with this IRS rule.
America has had many close elections, but two of the most consequential — and most screwed up — were 1876 and 2000.
They were botched and stolen elections that changed the course of history. Had they turned out different, we might have better racial justice and a solution to climate change. Seriously. Two of the most urgent crises of today would be better if we had better election systems.
I bet you never thought you might need to know something about the election of 1876. Rutherford B. Hayes and Samuel Tilden were names I never thought I’d have to remember from history class. It turns out that they matter.
Al Gore and George W. Bush and the election of 2000 on the other hand, are etched into our current collective memory. The narrow loss by Al Gore in 2000 was a wake up call for me. I didn’t do anything to help Al Gore win. Yet he was an example of how one person can change history. It made me realize that elections matter and I have to do what I can to put the people with my values in office.
Imagine a Gore presidency. He would have done something about climate change. People forget that in 2000 it was not such a polarized topic. George W. Bush vowed to address climate change, just like Al Gore. But he and his vice president, Dick Cheney, were beholden to the oil industry and nothing happened – worse, they expanded fossil fuel use and exploration. When 9-11 happened on their watch, they used it as a pretext to invade Iraq. Al Gore would not have been under those neocon illusions. We are living the consequences of that election with unabated global warming and a failed Iraq.
The choice of Rutherford B. Hayes (hint, he won the election of 1876) was consequential too. In order to secure his win, he made a compromise with southern Congress members to end reconstruction and pull federal troops out of the former Confederate states. In return the Southerns promised to honor the voting rights and provide equal education to former slaves. We all know how that turned out. Jim Crow laws started in the South soon afterward and didn’t end until 1965. What if Hayes wasn’t forced to make that compromise? We might have a more fair, slightly less racist country if the South had been forced to allow the formerly enslaved to have power.
The Election of 2000
You probably know the election of 2000 was a mess. Al Gore won the popular vote across the country, but the winner was decided by Florida’s electoral votes, which was so thin we had multiple recounts. There were many court cases and procedural disputes by local boards responsible for the counts. In the end the US Supreme Court took the unusual step of intervening in a state decision and ended a recount process. It had the effect of declaring Bush the winner with a margin of only 537 votes out of a total of almost 6 million cast.
The Election of 1876
In 1876 the country was celebrating its 100th birthday, and still recovering from the Civil War. On election night, both sides went to sleep thinking the next president would be Samuel Tilden, the Democrat. The next morning, however, it was clear that Tilden was one electoral vote shy of winning. Meanwhile, dozens of electoral votes were in dispute from Oregon, South Carolina, Louisiana, and Florida (always, Florida!).
The Republican side realized that if they could win the disputed votes, Hayes would be president. Thus began a partisan fight to swing the election that made 2000 look like a friendly game of poker. Activists on both sides swung into action using courts, political pressure, procedural maneuvering, violence and bribery to get their way.
The result was a mess. Oregon was the simplest of the problems. One elector had been disqualified and the replacement voted for Tilden instead of Hayes, who had won the state’s popular vote. South Carolina had ballots that amounted to 101 percent of the voters in the state. Louisiana and Florida each submitted multiple slates of electoral votes. Florida, ever the special case, submitted four.
The Constitution is not specific on how to resolve this dispute. It instructs, “the President of the Senate shall, in presence of the Senate and House of Representatives, open all the [electoral] certificates, and the votes shall then be counted.” What exactly was the role of the Senate and House of Representatives? Were they to simply be present? Or were they meant to be active in the process? And what does it mean to “be counted” when there are multiple slates of votes from the same states? The questions were compounded because Republicans controlled the Senate and Democrats the House. Naturally Republicans argued for the Senate President to decide which slates were valid. And Democrats argued that since the election was in dispute the House should resolve the question.
The compromise was to create a new entity, a fifteen-member election commission with five members each from the Senate, House, and Supreme Court. It ended up having a Republican majority of one. They voted along partisan lines to award all the disputed votes to Hayes, making him the president. Since the House had to vote on the results, the final result was passed only after a last minute deal with Southern Democrats who could have blocked the result. Their price was ending reconstruction and pulling federal troops from southern states. In return they promised to maintain voting rights and educational opportunities for African Americans. Hayes kept his promise after becoming president. Southerns broke theirs beginning a brutal system of “separate but equal” that did not end until the 1960s.
What are the lessons from these two contested elections?
The meek loose. In both contests the Democratic candidate was reluctant to engage in the brass knuckled political fight. Tilden and Gore were more concerned with the appearance of propriety and had greater faith in the process. Hayes and Bush — more important their henchmen — were willing to make the process political, not just legal. Pressure from protests and partisan loyalties secured the presidency for both Republicans.
It takes a long time. In 1876 the election result was not finalized until 48 hours before inauguration! Since then we’ve moved inauguration from March to January, so there is even less time today to resolve disputes. In 2000, the Supreme Court took a surprising step and intervened in the election process. Some speculate that the justices sought to avoid a long process like 1876. (BTW, Chief Justice Renquist happened to author a history of the 1876 election that I’ve read.) Even with that, it took more than a month after election day.
The Constitution is vague. The vagueness helps us sometimes, allowing courts to adapt it to our changing circumstances. With an election, however, specificity is important. In 1876, Congress invented a new system to resolve the election. In 2000, the Supreme Court intervened in state-level decisions, against most expectations.
How do we avoid screwing up this election if it is close?
The opportunities for a contested election are greater than any time in recent memory. There may be claims ranging from foreign interference, mail system slow downs, failure to prepare adequately for COVID-19, and even the potential for voter intimidation by militias. And there might be kooky claims because, you know, Trump. He lied in 2017, claiming millions of illegal aliens voted in the 2016 election. Who knows what he might invent this time.
One solution is to think through how we solve potential problems now. Mike Pence, as President of the Senate, will be responsible for counting the electoral votes. It is not a stretch to imagine him throwing out some votes, allowing Trump to be the winner. We can hope that Republicans in the Senate would object, but their supine history suggests otherwise. Nancy Pelosi could counter by refusing to assemble the House to count the votes, a requirement of the Constitution. Representative Ro Khanna and law professor Bruce Ackerman have proposed a good idea to avoid this scenario. They recommend Congress appoint an Election Commission now that would consist of Supreme Court justices. It would have the added advantage of a quasi-judicial process to bring complaints of election fraud.
A lesson from 1876 is that compromise was pushed by commercial interests. Like always, business wants stability and the turmoil of that election threatened to literally begin another civil war. Business leaders should be ready to stand up and speak for a stable transition of power, rule of law, and democratic traditions.
What can we all do?
The #1 thing we can do is educate everyone. Everyone, especially the media, need to prepare for a long counting process and no result for days, maybe weeks. You can play a role in your own conversations with friends and family.
#2 is to win big. If Democrats have an overwhelming majority win in the key swing states, it will be harder for Trump to claim he won. (I don’t think it will stop him, just make it harder.) So donate your time and your money to Democrats all up and down the ticket.
A #3 priority is to make sure we have the lawyers and street demonstrators at the ready to make sure the election is not stolen by partisans at the local level. Organizations like the Brennan Center and the ACLU are focused on making sure elections are fair. And every Democrat needs to stand ready to fly to a swing state if necessary to defend democracy and the right for your vote to count. We can not afford to be meek.
It starts at the top with a president who breaks laws with impunity. It includes police who can violate rights with no consequence. And it extends to the looter who breaks windows to steal, emboldened by lawbreakers all around. They are connected. Lawlessness permeates our society.
How did we get here? And how do we get back to a law-following society?
It didn’t have to be like this. We elected a president who was a rule breaker. Remember how he bragged that the fact that he paid no taxes made him “smart” not a tax evader? Remember how talk of sexual harassment, kissing & grabbing a woman by her genetalia was “just locker room talk?” He has excused away endless campaign finance law violations. Meanwhile, many of his employees and associates have been convicted for the same acts.
When people see that others can violate the law with no consequence, we are naturally upset and resentful. When the police see that the leaders of the country can get away with almost anything, why should they expect they will be held to account? When looters know the president and the police can take things without permission — whether it is kissing a woman without consent or putting a knee on a neck — it emboldens them.
The path of holding Trump accountable through the courts will take time and he is shielded from some prosecution while he is president. The #1 method to hold him accountable and declare enough is enough is to vote him out. We also need to vote out the Republicans who have enabled him in the Senate and House.
If you want a lawful USA, you have to start at the top.
The idea of the mileage purchase agreement (MPA) is getting off the ground. Recently, I asked the Gigaton Scale Question: can this idea scale to be a solution to the climate crisis. Can it, for example, avoid a gigaton of carbon dioxide emissions within a decade? That is the scale of solutions we need and the Gigaton Scale Question is a sanity check on whether an idea can help solve our climate crisis.
Gigaton Scale Question: can a climate solution avoid a gigaton of carbon dioxide equivalent emissions within a decade?
Gigaton Throwdown Report 2009
How big is a gigaton? A lot. For context, we need to reduce global emissions by 14 to 30 gigatons per year by 2030. This would limit warming to 2 to 1.5° C.* So reducing emissions by a gigaton per year would help achieve that ambitious goal. One gigaton-scale solution is not a silver bullet, but nothing is.
This is a complicated question that I have tackled before.** Using a back-of-the-envelope spreadsheet model, I conclude that we could achieve gigaton scale with about an additional 100 million EVs in the worldwide fleet. This is a simple model and I make some key assumptions, for example that these are high mileage vehicles and that they are deployed into a grid with carbon intensity similar to today’s California grid.
Is it possible to add an additional 100M EVs by 2030? Current projections show we will have about 116 million EVs worldwide by 2030, which is less than 10% of the total. Could we get to about 200 million EVs by 2030? Certainly it is audacious goal (also big and hairy). But yes, it is possible.
Evidence from solar shows a path of how it could work. Ten years ago, everyone projected that 20+ percent annual growth in solar was not sustainable. Yes, that had been the historic growth rate, but it didn’t seem possible that it could continue. As we know now, the growth rate continued and even accelerated past 20%.
A big reason for solar’s rapid growth was the introduction of third party financing of solar in the form of power purchase agreements (PPAs), loans and leases. In 2010, for example, these financial products were introduced in Colorado and within two years, they represented 75% of solar installations.
Could a financial innovation also cause a massive growth in EV adoption?
The 2020 Bloomberg EV Outlook predicts 116 million EVs by 2030. It assumes price parity for the up-front price of EV versus fossil-fuel in 2025 and continued price reductions through 2030.
How could MPAs result in over 200 million EVs by 2030? Like solar, financial innovations can make a dramatic difference in adoption. What if the up-front cost of an EV became cheaper than a fossil-fuel car this year instead of 2025? What if by 2025, EVs are “free” in the same way a cell phone is free as part of a carrier’s payment plan? MPAs and related innovations can make both these true.
What if EVs are free in the same way cell phones are free as part of a carrier’s plan?
To make it happen, we will need to climb a mountain of policy changes, company creation and building, capital formation, and most important — willingness to imagine and dream big.
I’m taking the first step by investing in project financing to get early MPAs deployed and mentoring the companies fielding MPAs. I’ve also assembled a team to put together a fund to accelerate the change as we figure out the details of how to make it work.
Many steps to go…stay tuned… even better, join us.
If you want to stay up on the latest about the MPA concept, add your name to the Spring Free EV mailing list here and follow me on Twitter or Linkedin.
* In 2018 about 37 gigatons were emitted by fossil fuels if you include changes in land use it was a total of 55 gigatons. “By 2030, emissions would need to be 25 per cent and 55 per cent lower than in 2018 to put the world on the least-cost pathway to limiting globalwarming to below 2 ̊C and 1.5°C respectively” (3.6°F to 2.7°F). Source: https://www.unenvironment.org/resources/emissions-gap-report-2019
** I was first exposed to the Gigaton climate wedge idea by researchers who were trying to conceptualize how to tackle the climate problem in the mid 2000s. (Pacala,S.,R.Socolow.2004.“StabilizationWedges:Solvingthe Climate Problem for the Next 50 Years with Current Technolo- gies.” Science. Vol. 305. August 13.) We used that concept on how to scale up clean energy technologies by 2020 in the study, “Gigaton Throwdown”
The mileage purchase agreement (MPA) idea is simple: Use the savings of driving an electric vehicle to reduce the up-front cost of buying an electric car.
The five year total cost of owning an EV like a Tesla Model 3 is cheaper than competitors like a Camry or BMW 3 Series. That means EVs are already a no brainer if people bought cars with cost in mind, with perfect rationality, perfect knowledge, and long term thinking. That, of course, never happens. Consumers and even fleet operators are driven by monthly payments and any number of other things like features, color, or whether they like the CEO. The MPA is a way to lower the monthly cost of driving an EV right away without having to do the math.
The economics will just get better over the years. A typical car lasts 16 years, not five, so the savings are even larger than the calculations above. Today’s electric cars should last even longer than today’s fossil-fuel cars. And it should just keep getting better with new battery technology, some of which claim to run one million miles.
One reason the MPA didn’t work in the past is that electric vehicles (EVs) were too expensive. Battery pack prices dropped prices by 90% from 2010 to 2019 due to ramp up in production and learning efficiencies.
Another reason it hasn’t worked yet is no one developed a version of the MPA that fit a burning need in the market. There was no “product-market fit” in startup language.
I ran a contest starting late in 2019 to find product-market fit for the MPA idea. We were successful in getting dozens of teams from around the world engaged. The top prize went to Flux EV, which is now getting ready to offer an MPA to facilitate getting a new EV and an in-home charger installation. Other contestants are also considering fielding an MPA product.
Simultaneous invention is a thing. You know an idea is ripe when many entrepreneurs hit on it around the same time. As a result of the contest, I know of several efforts to create variations of the MPA for different niches in different regions and countries. There may be others I don’t know yet.
If you are thinking of deploying the MPA idea or something similar, please reach out. You can drop me a line via Spring Ventures. I am looking for opportunities to invest in startup companies and creating a new fund to back MPAs as project financing for established companies as well as startups.
PS – If you want to stay up on the latest about the MPA concept, add your name to the Spring Free EV mailing list here or follow me on Twitter or Linkedin.
I have been working 100% remote for years on angel investments, developing an app, and running a contest.
Here are the top three things I learned.
#3 Commit to the tools.
When people think “remote work” their minds jump to video conferencing like Zoom, Skype, Hangouts, and others. The more fundamental tools that enable remote work allow us to collaborate in creating documents, tracking tasks, and coordinating decision making and messaging. Remote work is possible because of tools like email, business chat like Slack and Microsoft Teams, and structured messaging like Trello, Salesforce, and Asana.
When doing remote work, you have to be vigilant about using these tools. They are great to establish a shared sense of project status and momentum, but only if everyone is on board. If the team reports in using Slack at 11am, be religious about it. If you track tasks on Trello, always update it as tasks progress.
#2 Structure your day.
The office provides a built-in structure for the cadence of your day. When I first started remote work, I found myself following the agenda of others’ through email and social media. I was pretty unproductive.
When you work remotely, you must create a daily ritual of laying out your priorities. Otherwise, you easily chase tasks and distractions through email, Slack and other messages. I also add rituals of meditation, gratitude, hydration, and exercise. Oh yeah, and coffee. I really like that one. I also find it satisfying to have a daily completion ritual like the one recommended by Cal Newport in Deep Work.
#1 Check in regularly with your team.
The most important thing is to have regular times and structures to check in with your team. At minimum you need a weekly check in but a daily one might make sense depending on the cadence and coordination needed. When everyone is remote, you need a substitute for the kind of check-in that happens in an office meeting or just chatting with co-workers.
Note it does not need to be a videoconference. In fact, this is a way that remote work is often better than live office meetings. A Slack message or an email update is often enough and more efficient than a full meeting.
I started pursuing a curiosity about consciousness and brain disease about four years ago, driven by my father’s Alzheimers disease. With that condition consciousness seems to slowly fade away. It is one of the hardest diseases to treat and there is no cure despite decades of research and trials.
As I chased my curiosity, I also noticed a number of entrepreneurs and small number of investors interested in the category. Four years ago, it was mostly large companies and billionaires funding R&D efforts picking up where DARPA had started. It is only in the last few years that it feels like there are more investable startups in the category. There are many small companies and an increasing number of entrepreneurs in the category. Earlier this year, CB Insights published a list of a few.
Most people may not know there are products available today that can change your brain state. These products can make you more active, less depressed, more energetic, more calm, or more successful at learning. In the lab are technologies that move human brains to deep states of meditation, could help cure ADHD and clinical depression, and restore motion to paraplegics. Today these advanced products are used in carefully controlled circumstances with informed consent by the patient. In the near future, they will be available through a prescription or perhaps just delivered overnight via Amazon.
The great promise of this technology is that we could cure or help alleviate major diseases of the brain, mind, and nervous system. Depression, ADHD, PTSD, addictions, and eating disorders might be one day be conquered in the same way we have dealt with diseases of the body like the flu, infections, tuberculosis, ulcers, and measles. There might also be ways to alleviate the suffering of diseases that degrade the brain like Parkinsons, ALS, Alzheimers and dementia.
Further in the misty future, proponents see breaking free of the bounds set by our homo sapien brains by expanding memories, processing capacity and ability to communicate with one another. While interesting, I find those ideas rather dull and uninspired. Why would I want to do something with my brain that a machine can do better? Truly breakthrough: perhaps we can expand our empathy toward one another if we can truly experience what it is like to experience another’s state of mind. That is something no machine will be able to do and in the process will amplify our own humanity. There is an interesting discussion on this topic here (at minute 34) by former DARPA director Arati Prabhakar interviewed by John Markoff.
Today, there are generally two categories of commercial neurotech products. The FDA approval process cleaves the market. On one side are devices and procedures that go through clinical testing, can make medical claims, and are typically paid for by insurance at a high price point. On the other side is the wild west of consumer devices. They are limited in their medical claims and are sensitive to price point. You can find devices that will claim to help you with everything from meditation to weight loss. Some, despite the FDA restriction, hint at claims to alleviate symptoms of Alzheimers and other disease.
I’ve only made one investment in the category so far (Open Water), but looking at more. I’m part of a group of angels are collaborating on the topic. We call ourselves the “Braingels.” It is possible this small investment category will be an important one and I’m enjoying combining my curiosity with my professional interest in entrepreneurship and investing.
Prop D is a small tax on ridesharing rides in San Francisco that varies from 3.25% for a regular ride to 1.5% for a shared or EV ride. Proponents say it would reduce congestion and increase revenue for public transit.
Both ideas are totally wrong. This ballot initiative is a wrecked remnant of political infighting.
I believe in creating new laws that actually accomplish something useful. New laws that are half-baked just gum up the works of government like old legacy software code, or like that overpriced shirt that you really should get rid of because you never wear it but feel guilty for doing it. Voters should reject lazy lawmaking like this. (also, clean up your code and get rid of that shirt)
First, this won’t help congestion. Think of the longest ride share you ever took in San Francisco. This tax would add about 78 cents to that ride. An average ride would cost about 50 cents extra. Would 50 cents really change your mind about whether to take a ride? No. Didn’t think so. So much for reduced congestion.
Second, this won’t help public transit much. Yes, it would raise about $32M per year. But consider that the budget is almost $1 billion … that is about 3% of the total budget. Plus, I generally hate pigeon-holed funding like this. There are better ways (see below).
Apparently this flat tire of an idea is the compromise between a higher tax proposed by a supervisor (Aaron Peskin) and Uber and Lyft lobbyist. Win-win for the politicians & lobbyists. Loss for us, the citizens.
How about putting a big tax (like $2 per mile) for cruising without a passenger in the car? That would put heat on both the companies and the drivers to pull over when waiting for a fare.
How about just a tax per mile? While not as good, at least it would stand a shot at reducing congestion.
Uber and Lyft will hate these ideas of course. But so what. This is our city, not theirs. If they want to put up a stink and fund a big campaign like Juul, let ’em.
Join me in rejecting this stupid ballot initiative. I would love it if someone wanted to put up an alternative next time around.
Sunil Paul is a San Francisco resident with his wife and two kids. He helped invent ridesharing as co-founder and CEO of Sidecar.
I looked at the front page of the Wall Street Journal today and the headlines told a tale of executive power being checked. Trump finally faces impeachment. WeWork’s board fired it’s founder-ceo. The former CEO of Volkswagen faces criminal charges for faking emissions controls. And Boris Johnson was rebuked by the UK Supreme Court. I don’t know what the deal is with craft brewers drinking light beer but I’m sure it is amusing.
We may be having a moment. The pendulum is swinging back to accountability to voters, shareholders, and established rules.
At the risk of over indexing on recent news, though, let’s look into how we got here.
The problem of the executive taking liberties is a long one. Plato, Aristotle, and Confucius all grappled with it. They recognized that in time of fast-changing conditions like war, countries need to entrust the executive with more powers. But they also knew that unchecked power leads to tyranny. Plato dreamed of benevolent philosopher kings.
While the founders of the US wanted three equal branches of government, the dynamic shifted in the 20th century with the expansion of the executive branch through world wars, depression, and the cold war and war on terror. One crisis after another seemed to call for a strong and expansive executive branch.
The relationship between the CEO and boards also shifted over time. The shareholder movement that started in the late 20th century had a long term impact of expecting boards to be more muscular representatives of their shareholders. If they didn’t, they risked being replaced by activist shareholders. At least that was the case for conventional public companies.
Meanwhile Silicon valley was building the case for more executive control.
We discovered founder CEOs are really good at exploiting new technology and painting a compelling vision of what was possible if we build something. Think of the founders of companies like Intel, HP, Apple, Microsoft. They led their companies with vision and were willing to challenge the establishment.
Jobs returning to Apple was an example that resonated particularly deep in Silicon Valley. It as close as you could come to a controlled experiment. Founder-led Apple flourishes in the early years. After the founder departs, the company flounders. He returns and it turns into a jaggernaut.
Then came Google. Their founders seemed to get it right with an experienced executive as CEO while they matured as company executives. Importantly, when they went public, they copied founder control share structures copied from family-controlled companies like the Washington Post. It gave the founders unprecedented control.
By the 2000s it was simply the way you did business if you were a smart founder CEO. The combination of plentiful capital and the precedent of Google, then Facebook, and many more made it easy to justify. Before then, it was an accepted practice to bring in the “adult” CEO to replace or augment the founders. As companies stayed private longer, the level of accountability of boards declined.
In both government and business we’ve had the rise of the “imperial executive” – CEOs and Presidents who have massive discretion with little accountability by boards of directors or Congress & courts.
Now it feels the pendulum is starting swinging away from the imperial executive. After being entranced by the magic of founder CEOs and ground breaking Presidents, we are learning what happens when we don’t get the benevolent philosopher kings. And rediscovering the truth of, “power corrupts and absolute power corrupts absolutely.”
The rise of the “people”
Here is what else these three have in common. The downfall begins with loosing the confidence of key members of a broad group of individuals. There is a widespread narrative about the boards of WeWork, Uber, and Nancy Pelosi rising up to re-establish the checks and balances of good governance. That’s because there is drama in these stories and they involve individuals. In other words, an easy to digest and report story.
The real truth is that these individual actors are channeling the signals from lots of individual actions. It was only when their CEO’s behavior was hurting the board members’ investment did they step in to fire their CEOs. Did these boards not know about questionable financial deals or a screw-the-rules culture earlier? Of course they did. WeWork and Uber boards were willing to put up with all sorts of bad behavior by their CEOs until potential public shareholders balked for Adam Neumann’s overreach, tanking their IPO. Uber’s board suddenly got religion after consumers revolted against Travis Kalanick’s toxic behavior with campaigns like #deleteuber.
The case of Trump, it took the recent Ukraine-Biden scandal for Nancy Pelosi to support impeachment. What changed? Moderate Democrat House members in swing districts, themselves reading the mood of their voters, voiced support for it. I found it especially interesting that a group of House members who all served in the military or intelligence branches described it as a national security concern. I agree. But weren’t any number of other previous Trump scandals threats to national security? Of course they were. The difference is that the sense of the voting public is changing.
This is a way that democracies and shareholder-consumer constituents should be operating. They can check the power of the executive through representatives.
Oh, and what about Boris and the VW CEO? The courts are having their day in Europe. It isn’t quite the same situation, but also a major check on the function of private and public executives.
It feels like we are having a critical moment in the accountability of executives in our society. There has been a wave of support for a stronger executive in business and government for decades. It feels like it may have crested. It will be an interesting theme to watch.