In December, 2015, a new startup called Juno entered the ride-hailing market in New York City with a simple proposition: it was going to treat its drivers better than its competitors, notably Uber, did theirs—and do “something that was socially responsible,” as one of Juno’s co-founders, Talmon Marco, told me last fall. In practice, that meant drivers would keep a bigger part of their fares and be eligible for a form of stock ownership in the company. But, on April 26th, when an Israeli company named Gett announced that it was buying Juno for two hundred million dollars, that changed. The merged company is dropping the restricted stock plan for drivers, and those who already hold stock are being offered small cash payments, reportedly in the hundred-dollar range, in exchange.
Juno’s founders had adopted the language of a doing-well-by-doing-good philosophy that has spread in the business world in recent years. Some call it conscious or socially responsible capitalism, but the basic idea is that any business has multiple stakeholders—not just owners but employees, consumers, and also the community—and each of their interests should be taken into account. The idea arose in response to an even more powerful principle: the primacy of investor rights. In a new book, “The Golden Passport,” the journalist Duff McDonald lays much of the blame for that thinking at the feet of a Harvard Business School professor named Michael Jensen, whose “agency theory,” developed in the nineteen-eighties, sought to align the interests of managers with those of the company’s investors. (Gordon Gekko spoke eloquently on its behalf in the movie “Wall Street.”) This alignment led to huge stock-option pay packages for top corporate managers and, McDonald argues, provided an intellectual framework that justifies doing anything (within the law) to increase a company’s stock price, whether that be firing workers or polluting the environment.
In this philosophical tension, the investors-above-all doctrine seems to have triumphed over the more inclusive approach. “I think what’s recent is maybe being so completely blatant about it,” Peter Cappelli, a professor and labor economist at Wharton, said. When American Airlines agreed to give raises to its pilots and flight attendants in April, analysts at a handful of investment banks reacted bitterly. “This is frustrating,” a Citigroup analyst named Kevin Crissey wrote in a note that was sent to the bank’s clients. “Labor is being paid first again. Shareholders get leftovers.” Jamie Baker, of JPMorgan, also chimed in: “We are troubled by AAL’s wealth transfer of nearly $1 billion to its labor groups.”
Those comments were mocked online, but similar sentiments are everywhere in the financial establishment. Both Costco and Whole Foods—whose C.E.O., John Mackey, wrote the book “Conscious Capitalism”—have been criticized by Wall Street investors and analysts for years for, among other things, their habit of paying workers above the bare minimum. Paul Polman, who, as C.E.O. of the Anglo-Dutch conglomerate Unilever, has made reducing the company’s carbon footprint a priority, recently fought off a takeover bid from Kraft Heinz, which is known for its ruthless cost-cutting.
Newer platform companies have also encountered the phenomenon. An app called Maple, which made the nearly unheard-of decision to offer health benefits and employee status to its food-delivery people, folded in recent months. Etsy, which allows craftspeople to sell their goods online, and which became known for its employee perks, has lost most of its stock-market value since it went public, in 2015; hedge-fund investors have been pushing the company to reduce its costs and to lay off employees. In the case of Juno, according to a person familiar with its operations, the founders sold the company and agreed to cut its driver stock awards because they couldn’t find new investors to finance its growth. “They were stuck from an expansion perspective, and this was what had to give,” I was told. “It came with some huge compromises.”
Many factors contributed to the troubles of these companies, but Cappelli notes how “vociferously the investment community seems to object to being nice to employees. It’s a reminder that, in the corporate world, things are constantly yielding to the finance guys—whether they know what they’re doing or not.”
This fixation on short-term stock gains is inherently unstable, Cappelli said. “The interesting thing is always to ask them, ‘What’s the value proposition for employees? Why should these people work only for the interest of the shareholders? How are you going to get people to work hard?’?” He went on, “I don’t think they have an answer.”
When I called a Juno driver named Salin Sarder to ask about the latest developments, he was surprised to learn that the Juno stock-grant program had been cancelled, and blamed his ignorance on the fact that he hadn’t checked his e-mail. (The company has not made a public statement and did not respond to my inquiries.) He was, on the other hand, pleased to learn that the new Juno-Gett would be honoring the favorable commission rate Juno had been offering, at least for a few months. He also had a few thoughts about the app-economy business model favored by Silicon Valley investors. “If you are a millionaire and all around you is poor, you have no safety,” Sarder, who comes from Bangladesh, said. “Happiness is there when everyone has happiness.”
This article appears in other versions of the June 5 & 12, 2017, issue of The New Yorker, with the headline “No More Mr. Nice Guy.”
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