First Quarter Review — with Aswath Damodaran | Prof G Markets

Governance Crisis

The corporate governance crisis in major tech companies is highlighted by the concentration of power and the lack of accountability. Aswath Damodaran argues that change is unlikely to come from within, as boards are often complacent until stock prices drop significantly 1. He cites the example of Mark Zuckerberg waking up to governance issues only after Facebook's stock plummeted 1.

If there's going to be change here, it's not going to come from the board of directors pushing for it. It's going to come from outside, and it's going to come almost entirely from the price dropping enough that they care.

--- Aswath Damodaran

The situation at Paramount, where controlling shareholder Sherri Redstone's decisions have led to turmoil, exemplifies the dangers of unchecked power in corporate governance 2.

   

Board Influence

Board dynamics in tech companies reveal a troubling pattern of interlocking directors and concentrated power. Ed Elson and Scott Galloway discuss how directors often serve on multiple boards, creating conflicts of interest and diluting accountability 3. Damodaran points out that this has led to a governance system where investors turn a blind eye to the concentration of power, as seen with Zuckerberg at Facebook 3.

We allowed Mark Zuckerberg to have the kind of power that he did because as investors, we look the other way.

--- Aswath Damodaran

This complacency has resulted in a corporate governance landscape where change is resisted, and power remains in the hands of a few 1.