There are occasional, if stunning, lightning bolts from corner offices demonstrating a profound disconnect between a CEO’s understanding of his firm’s role in the world and what pretty much everyone else thinks. In 2009, it was CEO Lloyd Blankfein saying Goldman Sachs did “God’s work.” Now, it’s David Marcus, the CEO of Facebook’s digital-currency project, telling the New York Times that Facebook faces “unfair resistance” as it enters the global payment system because it’s nothing more threatening than a “challenger.” Few outside the Valley still think of tech-platform companies as scrappy, inspired outsiders. But, even if they do, key public officials don’t. That’s why the raft of new rules I outlined last week is for sure.
How can I be so certain that crypto and fintech firms – especially big ones – will meet the regulatory reaper? For one thing, every U.S. public official who can make this happen says it’s going to happen. For another, a disconnect between external reality and internal illusion increases the odds of a rude awakening.
Goldman Sachs had its in the reforms following the great financial crisis; tech companies are facing theirs in President Biden’s new competition policy and a set of tough-minded antitrust regulators sure to act no matter how bogged down Congressional reform may be. And, once the Financial Stability Oversight Council, the Fed, the OCC, the SEC, CFTC, FinCEN, and the CFPB get going, they’ll ride roughshod.
The indisputable fact is that Facebook is no challenger to anything other than our sense of social order and personal privacy. It’s a company with almost 3 billion active users, annual earnings of $86 billion, and an amazing ability to use personal data for corporate dominance. If you still doubt this, check out a Washington Post story late last week showing how Facebook told the White House to shove it when asked for data that would quell anti-vaccination postings. Other tech-platform companies were accommodating, but Facebook holds the bulk of the social-media data and it just said no and there matters still stand despite Facebook’s announcement last week that it’s the most transparent of all the tech companies.
None of the activities that gave Facebook this power was regulated in any meaningful way when the company essentially created them because no one understood the power of what one author now calls “surveillance capitalism.” We do, though, regulate the payment system because nations have learned the very hard way about what happens when entities without enforceable rules get hold of other people’s money.
All this means that Facebook is not a challenger – it’s an interloper seeking to enter an established market with established rules that, even if some could use an update, would govern everyone but Facebook if the firm achieved its stated ambitions and no one reins it in. Facebook’s challenge is thus not just to competition, but also to an established order created from the wreckage of repeated payment-system failures.
This isn’t to say that Facebook couldn’t get a lot of its way if it wends with some care. Put simply, there are two ways to deal with policy and political challenges to a hegemonic business model.
One is to believe that all one does in the interests of shareholders is somehow also inextricably intertwined with the public good. This is a comforting view not only of a massive corporate enterprise, but also of the CEO’s personal place in the moral universe. But, it’s rarely if ever true because making that much money is rarely, if ever, wholly impeccable. Thus, this strategy never works for long no matter how many of those espousing it climb the corporate ladder.
The second approach is epitomized of late by JPMorgan’s Jamie Dimon. As his widely-read annual letters make clear, he’s no apologist for the world’s largest bank. Indeed, he often glosses over its imperfections or those of its sister institutions.
However, when it comes to public policy, he’s both wily and far-sighted. Read for example his most recent letter’s discussion of tech-platform companies to see not only why no one will think Facebook is nothing but a challenger, but also why rules will be wrought. JPMorgan has paid its own price at the hands of public policy, but the number of scrapes from which it’s extracted itself without a scratch suggests its analyze-a-problem-thoroughly, give-a-little, get-a lot tactics will stand it and like-kind practitioners in good stead.
They won’t always be right and their power surely poses competition and stability challenges. Still, CEOs who see the other side’s point tend to get a good deal more of what they want when it really matters.