Focusing on stakeholders has become trendy. In 2019, even the Business Roundtable (an association of CEOs of major American companies) acknowledged that "companies must commit to delivering value to all stakeholders": not only shareholders, but also customers, employees, suppliers, and local communities. This declaration was signed, among others, by Tim Cook (Apple), Jeff Bezos (Amazon), and Satya Nadella (Microsoft).
To translate these intentions into reality, a radical transformation is necessary: large companies must integrate into their business strategy a principle of balance between profit-seeking and consideration of social and environmental issues. And this cannot be done without transforming the body that alone has the power to validate such trade-offs: the Board of Directors.
This transformation comes at a time when the GAFAM (Google, Apple, Facebook, Amazon, Microsoft) have become the richest, most powerful, and most influential companies in the Western world. Whether it's innovation, organization, logistics, or technological choices, the GAFAM inspire companies and decision-makers worldwide. So, we can hypothesize that they also have influence over corporate governance models.
It is then interesting to ask the following question: Do the composition and operation of the Boards of Directors (Boards) at GAFAM favor a balance between profit-seeking and the interests of other stakeholders?
Strengths of GAFAM
Gender Parity
Gender parity in leadership positions helps promote gender equality within our societies; some studies even suggest that female board members are more sensitive than their male counterparts to social and environmental issues.
The presence of women on boards is a strength of GAFAM, where women represent 41% of board members – a significantly higher level than the average of American companies. However, beware of tokenism: at Microsoft, for example, there are 7 women out of 13 on the board but only 20% among top management.
In the United States, unlike France and most European countries, there is no federal requirement for gender diversity. As a result, in 2019, the proportion of female board members stood at 27%, far from leading countries in this area – such as France (45%), Iceland (44%), or New Zealand (42%).
However, the situation is evolving, notably following the introduction of quotas for women on boards by the state of California.
Ethnic Diversity
Ethnic diversity can promote better consideration of economic and social inclusion issues.
However, whether in France or the United States, the situation regarding this criterion is far from satisfactory. In the United States, in 2019, board members from ethnic minorities accounted for only 10%, despite these groups representing 40% of the population. In France, there are no official statistics, but an empirical study suggests that board members of large companies declaring themselves from an ethnic minority represent only 4% of the total.
At GAFAM, based on empirical calculations, board members from ethnic minorities represent around 18% - a level also higher than the average of large American companies. Google and Microsoft even have CEOs from ethnic minorities (Indian, in this case). However, it is surprising that companies like Facebook and Amazon have no African-American board members.
The underrepresentation of ethnic minorities in IT companies stems from the higher education system. In the United States, in engineering programs, students from backgrounds other than "Non-Hispanic White" represent only 6% of master's graduates and 5% of doctoral graduates.
Age Diversity
In a context of strong generational divides (it is mostly young people who demonstrate for climate action), the presence of young people on boards can promote a more long-term-oriented vision, especially in terms of combating climate change. In 2016, the Quebec government even passed a law stipulating that from 2021, all companies controlled by the state must have at least one person under the age of 35 on their board of directors.
At GAFAM, the average age of board members is significantly lower than the average of large American companies. However, contrary to what one might imagine, only two out of 60 board members (both at Facebook) are under 45.
In general, despite the digital revolution, in recent years, the boards of large American companies have aged: in 2019, the average age of board members was 62, and those under 45 accounted for only 5% of the total!
Weaknesses of GAFAM
Social and Environmental Skills
To integrate environmental and social issues into a company's strategy, it is also necessary to have the necessary skills. However, as summarized by a note from the International Corporate Governance Network (an organization of investors that promotes standards for corporate governance), "board members of large companies are largely retired executives who spent most of their careers at a time when climate change and the transition to sustainable models were marginal issues."
Today, only 10% of board members of large American companies have social or environmental skills, compared to 70% for financial skills. According to the ICGN, "very few boards are able to address environmental issues with the same rigor and professionalism as issues such as strategy, risk management, or internal audit."
At GAFAM, the situation is no better. Their board members come from large multinational corporations, financial institutions, IT companies, or from politics or senior administration (the most famous case: Al Gore, former Vice President of the United States and environmental activist, now on the board of Apple). However, none of them come from a career in social or environmental organizations: NGOs, foundations, development aid institutions, climate or biodiversity research institutes.
Representation of Employees on Boards
Employees are, alongside shareholders, the other "constituent" part of the company, in which they invest their time, skills, commitment, and sometimes even their health. Taking this into account, many countries require large companies to have one or more employee board members.
This is the case in most European Union countries and especially in France, where the system of employee board members was strengthened by the 2019 Pacte law. For example, on the board of Orange, out of 14 members, there are 3 employee directors. In Germany, employee representatives can account for up to half of the seats on the Supervisory Board.
In the United States, companies do not have this obligation (recent legislative initiatives in this area have not succeeded), but nothing prevents companies from having employee board members. According to some, this would make a lot of sense at GAFAM, where it is not uncommon for groups of employees to organize initiatives to challenge their management's decisions (employee activism). Thus, beyond representing the voices of employees, employee directors can help prevent situations that could damage the company's reputation or lead to resignations of key personnel.
So far, however, no GAFAM has chosen to allocate board seats to employee representatives. In 2019, at Microsoft, a resolution moving in this direction was submitted by a minority shareholder, but the shareholders' meeting opposed it.
CSR Dedicated Committees
Another way to promote consideration of non-financial issues is to create Corporate Social Responsibility (CSR) Committees within boards.
Regulatory-wise, large American publicly traded companies must have at least three Committees. These must be responsible for Internal Control, Compensation, Nominations, and Governance, respectively. They can then set up one or more additional Committees - typically Executive Committees (38% of companies) or Financial Committees (36%). In 2018, only 6% of S&P 500 companies had a CSR Committee.
GAFAM are not particularly exemplary: none of their boards has set up a committee entirely dedicated to social and environmental issues. At Microsoft, there is a Regulation and Public Policy Committee responsible, among other things, for social and environmental issues. At Facebook, there is a Privacy Committee.
However, other digital companies have taken this path: for example, Airbnb announced in 2020 the creation of a Stakeholder Committee, responsible for monitoring value creation for key stakeholders (shareholders, employees, hosts, tenants, local communities) via a precise list of indicators, made public by the company.
Dialogue Forums with External Experts
Another way for boards to better consider stakeholders' interests is to create forums for dialogue between board members and external individuals with expertise in social or environmental matters: representatives of NGOs; academic experts; former politicians etc. Since they are not mandated to represent shareholder interests, these individuals have greater freedom to criticize the company's decisions.
In France, companies as diverse as AXA, Michelin, MAIF, SNCF, or EDF have set up such forums, often called Stakeholder Committees. The case of MAIF is particularly inspiring: becoming a mission-driven company in 2020, the company set up a Mission Committee "responsible for ensuring that its actions are in line with its purpose and its social and environmental commitments." This Committee currently consists of ten members, including five internal members: two board members, one deputy CEO, two employees. But also five external members: two academics, one union representative, two individuals from the associative world. Nothing similar exists at GAFAM for now.
Facebook's Oversight Board: A "Supreme Court" within Facebook?
Among governance innovations, Facebook's highly controversial Oversight Board deserves special mention. This is a sort of private Supreme Court, tasked with making decisions on particularly sensitive content moderation cases (content removal, user suspension or expulsion...) but also with making recommendations to Facebook regarding the evolution of its internal content moderation policies.
The Oversight Board is a legally and financially separate entity from Facebook, and its deliberations are binding on the company. It consists of 11 to 40 individuals knowledgeable about "topics related to digital content and governance, including freedom of expression, civic discourse, security, privacy, and technology." Among the current 19 members, who were selected by Facebook, are law professors, journalists, publishers, representatives of NGOs and foundations, social activists, and former political decision-makers. In the future, new members will be selected by the Board itself.
This initiative is controversial. Some see it as a positive innovation. Indeed, in the absence of regulation by public authorities, the Board ensures that Facebook's most controversial moderation decisions are reviewed by a panel of independent experts. Others consider that by setting up this sort of Supreme Court, Facebook is trying to legitimize itself as a kind of independent state and thereby evade the authority of states.
Will this innovation last over time? Will other companies follow Facebook's example? It is too early to measure the long-term impacts of this initiative. Whatever one may think, it is still the first time that a major multinational has introduced an autonomous body whose decisions are binding on top management and the board of directors.
Final Considerations
The boards of directors of GAFAM generally have higher levels of diversity (gender, ethnic origin, age) than the average of large American companies. This diversity can promote a certain openness, especially to social inclusion issues and equality of opportunities. Consider movements like Me Too and Black Lives Matter.
However, this is not enough to fulfill the promise made by large companies to "deliver value to all stakeholders". For this, GAFAM could partly draw inspiration from existing solutions in Europe. Such as employee directors or Stakeholder Committees.
They could also demonstrate the same spirit of innovation in governance that they have shown in other areas and test new solutions for dialogue and compromise with stakeholders. Why not, also leveraging the possibilities offered by digital technologies.
