Not Just a Few Companies, But a Few Individuals
By: Natalia Renta
The artificial intelligence (AI) gold rush is creating a double threat of concentrated economic power. There is the monopoly power of Big Tech companies. Companies like Meta, Amazon, Alphabet, Oracle, xAI, and others are vying to dominate the artificial intelligence gold rush and the economy. The less well-known threat comes from the concentration of this corporate power in the hands of just a few individuals.
In the last few years, venture capitalists (VC), Elon Musk, Mark Zuckerberg, and other power players have triggered a race to the bottom in state corporate law, winning changes that increase the power of corporate insiders while decreasing the ability of other shareholders, like pensions, to hold them accountable.
Race to the Bottom in State Corporate Law at the Behest of Big Tech and VC
Last year, at the behest of venture capital firms, Delaware — which has been the state of choice for companies to incorporate in for many years — passed a law that gave venture capital and other large, early investors special rights that allow them to second guess and effectively control boards of directors. Earlier this year, Delaware again changed its laws following threats by both Musk and Zuckerberg to reincorporate their companies elsewhere. This major overhaul makes it easier for corporate insiders to escape scrutiny for conflicted transactions and self-dealing that can harm regular shareholders.
Notably, this directly benefits Oracle’s Larry Ellison, who founded the company and owns 40 percent of it. Even though he won a shareholder lawsuit alleging he made Oracle pay too much money for NetSuite (in which Ellison also had a significant stake), it wasn’t before a protracted legal battle of over five years, a full trial, and an appeal to the Delaware Supreme Court. It also benefits Larry Page and Sergey Brin, who together have 90 percent of voting power at Alphabet, and Zuckerberg, who has over 60 percent voting power at Meta.
Even these drastic changes to Delaware law were not enough for Andreessen Horowitz — founded by Bitcoin backer, Trump advisor, and right-wing futurist Mark Andreessen — which reincorporated in Nevada and is advocating that others in the VC and tech world do the same to take advantage of its founder-friendly corporate law.
Last, but not least, Texas has also changed its corporate law since Musk relocated Tesla and SpaceX there (Musk’s xAI is incorporated in Nevada). One of the changes allows companies to prevent shareholders from suing insiders that harm the company unless they have a mountain of stock. The threshold is so onerous that it effectively insulates insiders from almost all shareholder lawsuits.
Federal Deregulation Rolls Back Protections
Meanwhile, the Securities and Exchange Commission (SEC) has put in place new rules that favor both private and public companies. It is making it easier for companies to stay private for longer by letting them raise capital from retail investors, which exposes mom and pop investors and workers saving for retirement to a host of new risks. For example, the private company OpenAI famous for ChatGPT has a $500 billion valuation and these rules make it easier for it to stay private longer, enriching insiders like Trump-whisperer Sam Altman. Other SEC changes let public company insiders avoid scrutiny and accountability by allowing forced arbitration and laying the groundwork for decreased disclosures.AI poses real risks to people, workers and civil rights, the economy, and the environment. Congress is turning its back on these risks by suggesting that AI be exempt from federal oversight for years. And the state and federal regulatory giveaways to companies and executives threaten to remove critical shareholder oversight that will worsen the impact on workers, communities, and the economy. With this crucial set of avenues for corporate accountability evaporating, the future of AI may not just be controlled by a few corporations, but by a few individuals.
AI poses real risks to people, workers and civil rights, the economy, and the environment. Congress is turning its back on these risks by suggesting that AI be exempt from federal oversight for years. And the state and federal regulatory giveaways to companies and executives threaten to remove critical shareholder oversight that will worsen the impact on workers, communities, and the economy. With this crucial set of avenues for corporate accountability evaporating, the future of AI may not just be controlled by a few corporations, but by a few individuals.