Airbnb Inc. is known for shaking up the lodging industry. Its home-sharing app is on millions of smartphones world-wide. Its easy-to-use booking system has spawned startup competitors, forcing hotel giants to rethink the way they do business.
The San Francisco firm is now trying to disrupt the way companies govern themselves.
On Friday, it laid out a vision for a company run to “benefit all our stakeholders over the long term.” Its new commitment includes tying bonuses to performance on the firm’s social goals and creating a “stakeholder committee” on the board of directors.
This is equivalent to telling companies’ owners they aren’t as important as they think. Corporations have a duty to put their shareholders first. That usually means profits, but there’s a growing number of corporations that say they’re built to make a positive impact on society, the environment, customers and employees.
The fact that Airbnb is expected to file an initial public offering this year amplifies the gravity of its move into those ranks.
For clothing maker Patagonia or
ice-cream-making Ben & Jerry’s, doing business with a conscience is expected. For Airbnb, with an expected valuation north of $30 billion, this ethic will test whether Wall Street will reward behaviors that don’t pad the bottom line.
Airbnb was founded by entrepreneurs maxing out credit cards and renting air mattresses in their apartment as the financial crisis began to unfold. A decade later, it considers itself “among the first of the 21st-century companies.”
The company’s stance comes amid debate about the state of American capitalism. Why do companies exist? Does long-termism trump short-termism?
This reached peak handwringing last year when 181 CEOs signed a Business Roundtable letter declaring they are “truly committed to meeting the needs of all stakeholders.”
the largest asset manager, has led this crusade, with Chief Executive
saying social issues, notably climate change, are paramount.
Good intentions are hard to fulfill. Managers tie compensation to stock performance and share prices are often based on meeting Wall Street’s profit forecasts. Analysts tend to reward companies that cut research-and-development budgets, lay people off or resist spending on clean technologies.
Some vocal investors are thinking differently. Speaking at a forum I attended in Manhattan on Tuesday,
a long-time activist investor, conceded “the pendulum has swung too far toward the shareholder.” Mr. Ubben, the founder of a hedge fund called ValueAct Capital, said that an activist can “get a CEO fired for missing financial metrics…but you can’t get a CEO fired for missing emissions.”
Mr. Ubben has established a $1 billion fund aimed at profiting from environmentally sustainable business practices. Holdings of his larger funds range from megabanks like
to a transportation startup called Nikola Motor Co. “The multi-stakeholder model is required to make capitalism work for society, period,” he said.
Certain companies have bent to pressure from shareholders that are adopting a socially responsible investing model.
Royal Dutch Shell
PLC in 2018 set ambitious carbon-emissions targets and linked them to executive pay. A few months later, rival
tied compensation for everyone from executives to rank-and-file workers to greenhouse-gas targets.
Silicon Valley is often seen as more progressive than the oil companies, food producers, manufacturers and major retailers grappling with the multistakeholder trend.
But tech companies have long argued that they don’t bear responsibility for problems on their platforms, raising questions about their social responsibility.
is routinely criticized for an alleged lack of regard for user privacy. The Journal recently found
was selling thousands of items on its site declared unsafe by federal agencies, many that lacked warnings about health risks to children.
Airbnb certainly has challenges policing its platform. Last month, my colleagues published an article highlighting safety issues, including criminal activity taking place in rentals. Background checks and other methods to safeguard hosts and guests were insufficient, prompting the company to beef up policies and invest in safety.
In its plan issued Friday, Airbnb said it identified five stakeholders making up its community: guests, hosts, communities, shareholders and employees. It acknowledged “shareholders help power this work and grow this incredible community” and said it would use financial metrics—including revenue; earnings before interest, taxes and amortization; and cash flow—as guideposts.
Compensation, however, will be tied to certain social goals, including safety and sustainability. To police this commitment, a stakeholder committee is being established within the board of directors and will be headed by outgoing Chief Operating Officer
Executives will also monitor these commitments and Airbnb promises to be transparent.
Erik Snyder, chief executive of the Drawdown Fund, commended Airbnb’s plan on Friday, saying basing compensation on targets broader than just financial goals is laudable.
“They get a lot of credit for saying this stuff is important and that they’re going to tie compensation to it and weave it into their corporate governance,” said Mr. Snyder, whose private-equity firm invests in companies addressing climate change.
Airbnb will host a stakeholder day to report on progress.
Mr. Snyder said Airbnb has to do more work in outlining the so-called social costs of its business as it goes public, and not just focus on items like sales numbers and Ebitda. For instance, will it outline the contribution its rentals may make to climate change? Or what role is Airbnb playing in addressing accessibility of affordable lodging in certain neighborhoods?
The company’s IPO, expected this year, could value Airbnb at around $31 billion or more, according to recent estimates. Airbnb has enjoyed annual revenue growth of 40% in certain years, outpacing the broader lodging industry.
But, the grow-at-all-costs strategy that often underpins the valuations of Silicon Valley companies is under scrutiny following the sharp decline of fast-growing WeWork’s perceived value after it filed IPO paperwork last year. As details emerged about WeWork’s leadership team, culture and uses of cash, the company’s status quickly went from being investor darling to being a troubled startup.
While it’s had its share of negative headlines, Airbnb has typically followed up on bad news with extensive statements on how it is working to change, or published long manifestos on its vision for business.
“Companies have a responsibility to improve society,” Airbnb CEO
wrote in a blog post about 21st-century companies one year ago. “The problems Airbnb can have a role in solving are so vast that we need to operate on a longer time horizon.”
We’ll soon find out if Wall Street, known to be somewhat allergic to “longer time horizons,” agrees with Mr. Chesky’s philosophy.
Write to John D. Stoll at email@example.com
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