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2/4/2014
11:50 AM
Rob Preston
Rob Preston
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Silicon Valley's 1%: Stinginess Is Not The Problem

Are the people who drive Silicon Valley a bunch of self-centered elitists? Let's debate business diversity -- not make gross generalizations about "the wealthy."

Wadhwa starts to drift into generalization territory when he piles onto the 1%ers, arguing that Silicon Valley tech companies "are also disconnected from the communities in which they live … aloof about the problems that the poor face. Very few help set up soup kitchens, build houses for the homeless, or provide scholarships for disadvantaged children." He goes on to say that "most startups focus on building senseless social media-type apps or solving the problems of the rich -- and that is what venture capitalists typically fund."

If "most" Silicon Valley start-ups are focusing on "senseless" social media apps and just trying to solve the problems of the rich, there won't be much of a Silicon Valley in five years. The evidence suggests otherwise. As of last year, VC firms had invested $31.5 billion in Silicon Valley tech start-ups, across 3,308 deals dating back to 2009, according to VC research firm CB Insights. Perhaps Wadhwa doesn't consider the robust VC and start-up activity around healthcare IT, mobility, cloud computing, and networking to be socially worthy. But it shouldn't be overlooked.

Meantime, how do Wadhwa and other critics, including Salesforce.com founder Marc Benioff, know that "very few" Silicon Valley tech companies are doing charitable work? My own San Francisco-based tech media and events company and its employees have supported various soup kitchens and home-building projects, but the world isn't privy to those efforts because they're not PR affairs. Could it be that lots of like efforts are happening under the radar across Silicon Valley?

And what of the enormous social good we do know about? Let's start with Benioff. Since he started Salesforce.com in 2000, the company's philosophy has been to donate 1% of its equity, 1% of its profit in the form of product giveaways or discounts, and 1% of its employees' time. Those donations have amounted to free or discounted products to more than 16,000 non-profits, 400,000 hours of employee community service, and more than $53 million in grants to The Red Cross, United Way, and other organizations, he says.

Benioff's old boss, Oracle founder and CEO Larry Ellison, takes heat in the media for spending lots of his wealth on America's Cup competitions and a Hawaiian island, but you may not know that his Ellison Medical Foundation has awarded nearly $430 million in grants since its founding in 1997, mostly in the area of anti-aging. Meantime, Ellison, like most Silicon Valley leaders, chooses to keep his extensive personal philanthropy private, including environmental work on that Hawaiian island. Outside Silicon Valley, Microsoft founder Bill Gates and the Bill & Melinda Gates Foundation are the most generous, influential philanthropists of our time, donating and marshaling tens of billions of dollars to raise healthcare, education, and living standards worldwide.

Is Vivek Ranadive, founder of Palo Alto-based Tibco Software, "disconnected" from the community he adopted to the east, Sacramento? When the NBA's Sacramento Kings were set to leave town for Seattle, poached by an investment group led by Microsoft's Steve Ballmer, the city turned to Ranadive, who led a group that laid out an NBA record $550 million to keep the Kings in Sacramento and build a new arena for the franchise. Ranadive has become a local hero, working with Sacramento mayor and former NBA guard Kevin Johnson. Ranadive and his partners will make some money on their investment, for sure, and Tibco's getting a lot of free publicity, but there's no ignoring what Ranadive has done to boost municipal pride.

I could go on with countless other examples of tech companies and their leaders making a difference outside of their commercial accomplishments. They're not exceptions. So many great things have come as a result of people striving not only to build great products and companies, but also to build great wealth for themselves, their families, and their shareholders. Yes, these individuals also have a responsibility to give back to society in meaningful ways. Most of them do, sometimes after they're finished building their companies and in ways you and I don't necessarily know about.

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Rob Preston currently serves as VP and editor in chief of InformationWeek, where he oversees the editorial content and direction of its various website, digital magazine, Webcast, live and virtual event, and other products. Rob has 25 years of experience in high-tech ... View Full Bio

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RobPreston
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RobPreston,
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2/4/2014 | 2:57:39 PM
Just scratching the surface
None of what I wrote above, of course, factors in the wider-spread wealth and job creation (and thus inherent good) that comes from building growing, thriving technology businesses. 
Lorna Garey
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Lorna Garey,
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2/4/2014 | 4:45:03 PM
Re: Just scratching the surface
Ginning up "class warfare" seems to be a growth industry. No doubt there's a problem around income inequality; it's a disturbing stat that 85 individuals own more wealth than half the world's population. However, I think there are much bigger villians than tech executives -- so why is it they get so much heat? Just visibility versus Wall Street, fossil fuel and military/industrial complex CEOs? Or perhaps they're seen as less likely to retailiate!
Thomas Claburn
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Thomas Claburn,
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2/4/2014 | 4:48:22 PM
Re: Just scratching the surface
As much as diversity is an important issue to address, Silicon Valley and Wall Street need to mind the gap between executive and employee pay. According to the Institute for Policy Studies, the average pay gap between CEOS and workers grew from 195-to-1 in 1993 to 354-to-1 in 2012. That's an average pay increase of 82% over a decade.

No single person deserves to be paid 354x what the average worker at a company makes (in terms of salary...when it comes to equity, I think that company founders deserve rewards for the risk they take, but that's a different issue). And that's an average. At some companies, the CEO makes over 1,000 times more than the average worker. 

Meanwhile, the median American household income has fallen from $54,932 in 1999 to $50,054 in 2012. And for the first time since the Great Depression, more than half the total income in the US went to the top 10% of Americans (The Second Machine Age, p.129).

This is not the way to run a sustainable, stable society. It's the road to strife. 
RobPreston
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RobPreston,
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2/4/2014 | 5:16:49 PM
Re: Just scratching the surface
I know this isn't a popular sentiment, but do we really think that spreading a CEO's pay around to the rank and file will make for better-run companies or happier employees? "No single person deserves to be paid 354x what the average worker at a company makes." So what's the right multiple? 100? 77? 10? 7? The law of supply and demand determines executive salaries, not some pretermined pay schedule of what's fair. I may not think a certain CEO is worth getting paid 354x what his/her average employee is paid (and I don't think most CEOs are worth the multiple), but not every CEO brings the same value...and what I think is fair doesn't matter in a capitalist economy.

If a CEO isn't earning his keep, bounce him--without the parachute. If employees don't like that the big boss is making a ton more money than they are, go work elsewhere. The disparity multiple isn't a number that can or should be managed to, unless we're going to institute arbitrary caps on executive pay. Are we then going to put caps on wealth as well?
 
The median American household income has fallen. The answer isn't to redistribute the pay of top execs. The math won't work. The answer is to get the economy booming again so that we create more opportunities and more competition for more people. 
 
Thomas Claburn
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Thomas Claburn,
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2/4/2014 | 6:50:21 PM
Re: Just scratching the surface
But does the law of supply and demand really apply to the way boards appoint CEOs? The process is closed and secretive. The selection criteria are biased in that the qualifications are subjective. (I suspect I could have run Yahoo into the ground at least as effectively as the ineffective executives who preceded Marissa Mayer, at a much lower cost, but the Yahoo board never called.) And accountability is limited through the corporate governance structure. Shareholders have to move mountains to get their motions acted on. What's more, such high pay tends not to be tied to performance. 

If CEO selection and salary determination were done through some public process with accountability and transparency, I would not have an issue with huge pay ratios. It would truly be up to the market. To flip the question around, is there a salary multiple that's unconscionable? 

There's an interesting Washington Post article from last year discussing this issue. In it, Peter Drucker suggests 20-to-1 is the right CEO/employee salary ratio to prevent resentment and low morale.

Meanwhile, we just saw Apple, Google, and other Silicon Valley companies conspiring to depress employee wages through non-competition agreements. We have a two-tiered system and management plays by a very different set of rules than employees.

I too hope a booming economy will raise all boats, but technology tends to create winner-take-all markets, making the problem worse rather than better.

Rather than wealth caps, we should be looking at where we have regulations that create exorbitant wealth for a few at the expense of the many. Take our intellectual property system, for example. Is there a point when the exclusive monopoly granted by a patent or copyright becomes anticompetitive and ends up blocking thousands of entrpreneurs in order to enrich one? That point varies by industry (biotech being more deserving of a long patent franchise than software, for example), but I do think it exists and should be given some serious thought.
RobPreston
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RobPreston,
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2/5/2014 | 8:30:00 AM
Re: Just scratching the surface
The law of supply and demand doesn't necessarily produce perfect decisions. Yahoo paid what it did for its previous CEOs because that was the pay the market was dictating. In retrospect, Yahoo overpaid its previous CEOs because they didn't produce -- so it fired them. If Yahoo's shareholders don't think the board is doing a good enough job of finding good CEOs or acting fast enough to rectify hiring mistakes or paying too much for the CEOs it brings in, then they can take their money out of Yahoo and invest it in some other company that they think is better run and has more transparent governance. I'm sure a lot of shareholders did just that before Marissa Mayer was hired--thus why Yahoo's stock price took a beating at that time.

If pay was about fairness or the importance of the job, nurses and teachers and power plant technicians would command among the highest salaries. But the market sets the rate -- there's a huge supply of teachers in my local area and not a lot of demand. Is it unfair that teachers make 1/354the of what a top investment banker might make? It's not a matter of fairness. 
David F. Carr
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David F. Carr,
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2/5/2014 | 9:11:11 AM
Re: Just scratching the surface
Maybe more of silicon valley's charitable giving should flow toward boosting the salaries of teachers, nurses, and others do social good.
RobPreston
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RobPreston,
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2/5/2014 | 9:13:56 AM
Re: Just scratching the surface
...I'm also not arguing that a 300:1 salary ratio is healthy for a company. If corporate boards want to manage to the 20:1 ratio that Peter Drucker recommends, I'm all for that. But companies shouldn't be held to ratios by some outside regulatory body or other overseer.
RobPreston
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RobPreston,
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2/7/2014 | 11:14:27 AM
Re: Just scratching the surface
At a recent HCM conference in Las Vegas, Ellison said a little about the work he's supporting on the Hawaiian island of Lanai, which he bought last year for $500 million. As my colleague Doug Henschen reports: Ellison spent more than five minutes detailing his plans for experiments in green energy, smart agriculture, and improved schools and public facilities on the island. "There are things we're doing as far as logistics, power generation, power distribution, irrigation, desalinization that can be a model for a next generation of technology," Ellison said.
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