Tech Valuations and The State of The Market — with Aswath Damodaran

CEO Influence

Aswath Damodaran highlights the growing influence of CEOs in shaping corporate governance and societal norms, a trend he finds concerning. He argues that the responsibility for major societal decisions has shifted from governments to powerful CEOs and investment fund managers, which he believes is problematic. Damodaran emphasizes the need for society to reclaim this responsibility, noting that the 2008 financial crisis eroded trust in governments, leading to an over-reliance on corporate leaders 1.

You cannot put this responsibility in the hands of even CEOs that you think are trustworthy.

--- Aswath Damodaran

He warns that trusting corporations over governments is a trade-off that may not benefit society in the long run.

   

Dual-Class Structures

The discussion on dual-class share structures reveals their impact on corporate governance and decision-making. Damodaran criticizes the environment that allows tech companies to operate with dual-class shares, likening it to a form of corporate dictatorship where founders hold unchecked power. He notes that this structure often leads to a lack of accountability, as seen in companies like Facebook and Google 2.

We thought we were buying benevolent dictatorships.

--- Aswath Damodaran

Scott Galloway adds that such governance models mimic autocracies, where leaders like Mark Zuckerberg can make unilateral decisions without sufficient checks, potentially harming the company's future 3.

   

Founder Worship Cycle

The culture of founder worship in the tech industry is cyclical and deeply ingrained, according to Damodaran. He observes that society often seeks messianic figures to lead, which perpetuates the cycle of founder worship despite its pitfalls. Damodaran stresses the importance of creating systems that can challenge founders when necessary, as the cycle is likely to repeat itself 4.

Founder worship will always be with us.

--- Aswath Damodaran

Galloway points out that in the absence of systemic regulation, other entities, like influential CEOs or even public figures, may step in to fill the void, highlighting the need for robust regulatory frameworks.