The Prof G Pod with Scott Galloway - Office Hours: Square’s Social Solution, How Labor Got Crushed, and the Dangers of Bad Corporate Governance

Episode Date: September 13, 2021

Scott answers a question about whether Square should acquire Twitter. He also explains how a concentration of power among investment firms poses a threat to a healthy business ecosystem, and how an imbalance between capital and labor is driving people out of the workforce.  Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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cards, savings accounts, mortgage rates, and more. NerdWallet, finance smarter. NerdWallet Compare Incorporated. NMLS 1617539. Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehoursatpropgmedia.com. Again, that's officehoursatpropgmedia.com. I have not heard these questions for that authentic, that real, that who is the dog tone. Question number one.

Hey, Scott. This is Leo from Urbana, Illinois. You talk a lot about how Twitter is struggling to have its value match its social relevance because the CEO, Jack Dorsey, only works there part-time and seems to put more effort into his other company that is worth much more, Square. You've also mentioned some potential acquisitions for Twitter, like CNN. Well, I've got a question for you. What do you think about Square buying Twitter? It's not so crazy.

There could be some synergies as Twitter moves into e-commerce. Square could also try to add a social media component to its Cash app, sort of like what Public does. And it solves the part-time CEO issue. Let me know what you think. Leo from Urbana, Illinois. Don't you get the sense, like, Urbana, Illinois is like Canada. I just assume that you're a nice person from Urbana. By the way, and I'm saying this because I like to virtue signal and only give money away if it can make me feel like I'm a better me. I just gave some money to the University of Illinois, the Illini, to help.

I want public schools. Two thirds of our kids are gonna end up at public schools. I think that's where we move the needle. I've given up on private schools. FSU will graduate more kids than the entire Ivy League. I think private schools have just decided that they're luxury brands and the individual there is just there to, you know, engage in some giant luxury Hermes-like circle jerk and aren't really concerned with moving America forward.

Too harsh? Too harsh? Anyway, you haven't blown my mind, Leo. You haven't blown my mind. You've read my mind. And that is I've been very critical of Jack Dorsey. It just personally offends me, the notion, having served on a bunch of boards, having been a CEO, that someone can run a company with this many issues that's this important part-time. I just find that the ultimate kind of narcissism and idolatry of innovators and just Twitter will never live up to its potential.

And the reality is Jack Dorsey is a full-time CEO. He's the full-time CEO of Square. That's where about 94% of his personal net worth is. Square is a fucking juggernaut, a juggernaut. I think it's worth more than Goldman Sachs or Morgan Stanley right now. And you know what? You know what? Maybe Jack is a lot smarter than me.

Maybe he is as smart as Leo from Urbana. I thought of the exact same thing. I'm not sure it was the original idea. I think I read it somewhere. But what if, as you suggest, Square buys Twitter and combines payments with social and begins using content and information and commerce and facilitates payments, facilitates connections, facilitates all sorts of marketing for Cash App on Twitter, and basically pulls the American version of Tencent.

This could be, I think this is just an incredibly intoxicating, interesting, insightful idea. And maybe I've sort of underestimated Dorsey. So for example, I thought it was pretty visionary that Square purchased Afterpay and everybody said they paid too much and they overpaid. Guess what? Square stock was up by more than the acquisition price. So whether it was crazy or not, they basically got the thing for free. The market loved it. An accretive acquisition on day zero, if you will. So I think the purchase of Twitter would be just incredibly visionary

in marrying payments with social. Twitter's sort of subscale. It punches above its weight class, but its market capitalization is dwarfed by its relevance. It's sort of the New York Times. The New York Times right now is arguably one of the most powerful media companies in the world, but it trades at kind of a measly, I think, $4 or $6 billion market

cap. It doesn't command the space it occupies from a shareholder perspective, which is frustrating, I'm sure, for shareholders, although its returns the last 24 months have been pretty good. You can imagine Twitter becoming sort of the social or the connective tissue for a better business that has better margins and gets better valuations. And that's specifically the payment space. In sum, I think it's a gangster idea, Leo. I think if Jack Dorsey were to pull this off,

I would have to apologize and say, I was wrong, you get it, I don't. And I think the markets would go apeshit crazy for this thing. I don't know if there'd be any antitrust issues. Probably not. I don't think the DOJ be any antitrust issues. Probably not. I don't think the DOJ, is the DOJ looking at Twitter? I don't know.

I don't know. But this would be incredibly powerful. You know who else is trying to marry social with fintech? Is a company, I'm an investor in public. And that is they're trying to put in a social component for investing. We'll see if that works. They're also putting out a daily news commentary, which I think is a pretty interesting idea. But there's something around the socialization of fintech that is really powerful.

And Square slash Twitter would be, oh my God. Talk about mind blown. I think the markets would go absolutely crazy for this thing. Anyways, boss, I don't know if you're in consulting or strategy, but yeah, anyways, word, my brother, I feel you and I agree with you. Great question. Thanks very much. Next question. Hi, Professor Galloway. Love your show. My name's Jake. I'm from Montreal. I'm heading into my final year of law school at Legalville Los Angeles. I love your coverage of the FTC versus big tech. I was wondering if the scope of their crackdown will extend beyond tech monopolies, specifically asset managers.

Much has been written about BlackRock's accumulation of single-family homes, which will likely increase in the near future, with eviction moratoriums being extended and small landlords struggling to pay their mortgages. Do you foresee any long-term harm if asset management firms continue to operate as is? And do you see any legal standing for the FTC to break up the Black black rocks of the world? If so, how would this work? Thank you. Jake from Montreal. All the cities I love. True story. I used to go to Formula One every year in Montreal. I think it's the second weekend in June. I went five years in a row. I have almost no interest in Formula One, but the dog likes those French Canadians. Montreal, Montreal, what an amazing city.

I think the most foreign city, maybe with the exception of Miami. I think Miami is the most foreign feeling city in the United States, but in North America, the most foreign feeling city is Montreal. You just, you feel as if you're in France. The people are totally cool. The women are hot. Am I allowed to say that? Sure if you're in France. The people are totally cool. The women are hot. Am I allowed to say that? Sure, I'll say it. The women are hot and the food is great and it's a ton of fun. And I go to the race one day just so I can say I went to the race, but I just think it's, I think it's just a fantastic city. And it's during that like

three week period where the weather is nice in Montreal. And I absolutely love going there. Anyways, absolutely nothing to do with your question other than I love Montreal. Anyway, what was the question? Oh, concentration of power in investment management or across investment firms. So I think BlackRock, State Street, and Vanguard are the biggest shareholders in something like 90% of companies on the S&P 500. And this is bad for a few reasons. One, it creates groupthink. It's a lack of diversity from a governance standpoint.

It makes boards inert. Typically, they don't serve on boards. They're just passive shareholders. And it's also just too much concentration of power. It's difficult for emerging companies to bust up or bust out. And one of the things I really like about Tim Wu, the law professor from Columbia who just joined the Biden administration, is he points out that the concentration of power is not just a threat to big tech, that there's big food, there's big ag, and in this case, there's big money. And you talk about them buying houses.

I don't see that as a threat because everyone says, oh, it's a threat that they're coming in and buying all the housing stock. They've tried to do that before. Colony Capital went into Florida and bought up a bunch of rental units and then found that servicing them

or managing them was difficult. And no one pukes out assets at a cheaper price than a corporation that's decided it's made a bad move. So I don't know. I think institutional buyers in real estate, I don't know if that's necessarily a bad thing. I mean, it's been tried before. Sometimes it works, sometimes it doesn't.

So I don't know you can just blanket say, well, it's gonna be bad for housing. And naturally speaking, if more and more people are driving up the values of houses above the replacement costs, then that should inspire more building, although there is a lag. And supposedly we're not going to have enough housing stock for five to 10 years. But in general, what I do think is unhealthy is the concentration of power in that industry, that these organizations have gotten too big, which suppresses competition. It suppresses innovation.

It suppresses job growth. And also just from a corporate governance level, we end up with kind of the same white guys. And let's be honest, it's almost usually white guys that are the largest shareholders of these companies, which leads to a homogenous level of groupthink around corporate governance. There has been some really interesting things at a corporate governance level. When you have people from BlackRock basically say that ESG is now becoming a criteria, that has moved the needle more in corporate behavior than almost anything I've seen because there's been a total vacuum in the market. It pours a vacuum when these companies are behaving so poorly.

When you see a company like Exxon, when a small shareholder basically shows up and says, sorry, we're going to vote your board out because of your bullshit approach or your totally irrational and dangerous approach to the move to renewables, you can bet Chevron is shit scared about their shareholder meeting. So I do think these companies actually have a different complexion. They have extraordinary power. The question is, do they have too much power and would we be better off with a more diversified ecosystem with multiple asset managers, multiple shareholders that bring more diverse governance? For example, and I'm going to try and relate this to a learning, I sit on the board of a lot of venture-backed companies. And typically, typically what happens is the following. Company gets out of the gate really strong. It attracts a world-class tier one VC. That tier one VC does the A round

and the B round because they like the company and these companies, the best VCs have one problem, and that is they have too much capital. So instead of having someone else price the next round, they basically take the entire round. They just preempt everything and say, we'll give a good step of evaluation and we're going to do the round. But this is what happens. It creates a board. And I'm usually the end-of-point board member

that is trying to represent management or trying to instill some sense of corporate governance. More virtue signaling from the dog, more virtue signaling. But what you end up with is a board where everyone's just trying to like, everyone says what they think. And then the one VC that owns 60% of the preferred tells you what we're going to do because they effectively control the company.

And that is not healthy. It's not good. There is a wisdom of crowds. Boards are supposed to be diverse. There is supposed to be some conflict. I had the CEO, I'm on the board of a fairly high profile company and the controlling shareholder was proposing, choosing my words carefully here because you don't want to speak out of school, but was proposing a transaction. And I didn't think it was a good idea. And the CEO immediately called me and said, that didn't land well, dah, dah, dah. And he gave me feedback.

I'm open to feedback. And I said, look, boss, good boards, good boards involve a couple of things. They involve conflict and they involve debate. Those are good things. That's the whole fucking point of a board. What did Theranos and Enron's board have in common? They all got along really well, too well, too well. You need to be respectful.

You should never have arguments be personal or emotional, but you should absolutely have robust debate on issues, whether it's compensation or acquisitions or approach to the marketplace. That's why we are there. And even if there's a controlling shareholder, even if there's a controlling shareholder, you are there to disagree if you disagree.

And maybe at the end of the day, they can replace everyone and get their way. But until then, until then, you are supposed to represent all stakeholders and speak your mind and advocate for your position. And when you have a small number of companies that own a disproportionate amount of the market, you end up with a lack of diversity. You end up with groupthink. You end up with a lack of innovation. So do I think I'm going in and buying a lot of real estate? I don't know if that's an existential threat. Sometimes that does not work out for big companies.

We'll see. So just some data. Corporate investors bought up 15% of U.S. homes for sale in the first quarter of this year, according to Slate. There's 15 million single-family rentals in the U.S. and institutional investors own 300,000 of them. What is that? That's about 2%. Of that 300,000, BlackRock owns about 80,000 largely through its investment in the real estate rental company Invitation Homes. Invitation Homes?

What does that mean? So it doesn't look like I would say it's sort of market moving ownership. What I do think is a threat is a lack of good corporate governance or a lack of diverse governance.

Jake from Montreal, when this virus, when this shit burns out, the dog is back. The dog is back. We'll be right back. Support for this show comes from Constant Contact. You know what's not easy?

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seamlessly. All backed by Constant Contact's expert live customer support. Ready, set, grow. Go to constantcontact.ca and start your free trial today. Go to constantcontact.ca for your free trial. Constantcontact.ca. radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. Welcome back. Next question. Hi, Prof G. My name is Skyler and I live in New York City. Thanks for taking my call. I really appreciate your refreshingly honest insights about achieving contentment in the modern world. My question is about the algebra of happiness, specifically your principle of

disregarding balance in favor of hard work in your 20s and 30s. How do you reconcile that idea with what we've seen in the last year, year and a half, with a decrease in workforce participation, in large part due to the terrible quality of many job opportunities or the crushing intensity of many high-paying jobs like those in finance? Is there perhaps another way to achieve happiness, fulfillment, and growth that is less related to a career? Thanks. Hello, Skylar from New York City. Thank you for the thoughtful question. So there is no owner's manual on happiness or they're only best practices. And kind of chapter one and the last chapter of best practices is the number of deep and meaningful relationships you have.

And that's true across all geographies. However, however, the second chapter in a modern economy, a Western capitalist economy, comes down to economic security. I'm not saying it's the right way, but it's the American way. And I say this all the time, that America becomes more like America every day. And that is, we become a better place for people with resources and a worse place for people without them. And there's so much innovation really around how do we make your life better in exchange for you transferring work and time to us? Or more specifically, how do we give you more and more crazy cool shit and experiences in exchange for money? Meaning that if you bring the skills and the commitment and the grit and the sacrifice to garner more and more money, you are going to get to do crazier and crazier cool shit and do and have cool and interesting experiences and things.

I just think that's what America is. America is a platform to a certain extent for economic vitality and the accoutrements of that economic vitality. Does that mean you can't be happy without being a baller economically? Sure you can. And a lot of it comes down to tradeoffs. If you decide to move to St. Louis on $100,000 a year, you can have a spouse and two kids and a house and a couple cars and take nice vacations. You cannot do that in Chicago, San Francisco, or even Austin. Nowhere near that. Not even in Minneapolis, I don't think.

So, and I have a proximity bias and that is the people I'm around, those are usually ambitious people that are not looking to lead what I'll call a modest life. And by the way, there's nothing wrong with that. A lot of people want to make furniture and live in Modesto and live a simple life and hang out with someone they love and have kids. Good for them. Right on, my brothers and sisters. I assume you are not that person and that you want to have a certain level of economic security and access to things that America only provides to people who make a really good living. I just don't think there's any getting around it. I think you have to work your ass off. I think that you should pick whatever industry you think you can be outstanding in.

I think some industries are going to have more wind in your sails, whether it's fintech, health tech, ed tech. I think what's going on, what's going on with people, more people are going to resign from their jobs in the 12 months, that is six months behind us and six months forward than in the last five years. But I don't think it's a recalibration of life. I think it's simply an overdue correction between the imbalance between capital and labor. And that is wages have largely stayed flat for the last 30 years, but the expectations on workers have gone up. The complexity of work has gone up. The skills you need to bring have gone up. Think about your expectations of everyone, of the person bringing you your food.

Let me speak to the manager. When I was a kid and I was a busboy and a waiter, no one said, Let me speak to the manager. When I was a kid and I was a busboy and a waiter, no one said, let me speak to the manager. They hoped for good service, but it wasn't guaranteed. If you tweet, if you're in an airline and the line's taking you too long, you can tweet and you might be able to get someone on the phone with you. If you go on Twitter or you go on Trip Advisor and say, I had a bad experience at this hotel. The manager responds. And so every year, wages have stayed the same for the worker. Productivity has gone up. Expectations have gone up.

Corporate profits have skyrocketed. So where has all that money gone? It's gone to corporate profits, which translates to shareholder value, which translates to an explosion in wealth across the people who get the majority of their compensation because they own shares, which is two people, the shareholder and senior management that gets the majority of their compensation from options. So you've had one key input, labor go flat.

You've had incredible increases in productivity, but it hasn't translated to progress. Now, what's happened? Every year as a worker, the expectations on me go up, the level of bullshit I have to put up with goes up. And then finally, what was the breaking point? I'm not making enough money to live any sort of semblance of a reasonable life, and I have to wear a mask, and I have rude people, and we're short-staffed and the government has said, and I believe justifiably and equitably said, we're going to make sure you don't starve. We're going to put in place a stimulus and a cares and a rescue package that gives you

enough money to live. So you know what? You know what? Fuck it. I'm not going to go work 50 hours a week with unreasonable expectations such that I have enough money to live in my car. So what do we have in the last 30, 40 years? Capital has kicked the living shit out of labor. And guess what? We've hit a tipping point and labor has said, no more boss,

no more to their boss, no more to capital, no more to shareholders. You want me to come back to work, you got to pay me. And all these restaurants, hotels, corporations saying, we have all these job openings and we can't get people. You know what? Yeah, you could. Pay your fucking people. Pay your people. People will apply for those jobs. Am I oversimplifying a bit? Yeah. But for the most part, there are probably 10, 20, 30% of businesses in some of these industries that shouldn't exist. If you can't have a viable restaurant unless you pay people $2 an hour plus tips, then guess what? You should close down.

We are long overdue for the pendulum to swing back just a touch, for God's sakes, to labor. Does that mean the guy who owns the restaurant or the dry cleaner is going to make less money? Yes. Does that mean the rental car company is going to have to pay the person washing the car more to get them to show up to work? Yes. Does that mean the profits are going to go down? C above? Yes. Does that mean shareholders will probably not have the same types of returns? Yes. And guess what? Guess what? That's a good thing. That's all for this episode. Again, if you'd like to submit a question, please email a voice recording to officehours at propgmedia.com. Our producers are Caroline Chagrin and Drew Burrows. Claire Miller

is our assistant producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Thursday. Hey, it's a great team and I like, I'm fortunate I work with people I enjoy hanging out with. And I don't know

if they enjoy hanging out with me, but daddy's buying. Daddy's buying, which means they have to laugh at my jokes and pretend to like me anyways. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined

by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Support for the show comes from Alex Partners. Did you know that almost 90% of executives see potential for growth from digital disruption? With 37% seeing significant or extremely high positive impact on revenue growth.

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