Nearly 100 years ago, Supreme Court Justice Louis Brandeis wrote “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.” Keeping those words in mind, the U.S. House Democrats’ antitrust subcommittee published an Investigation of Competition in Digital Markets report in late 2020 demonstrating the need for serious reform and action to rein in the unfair power that Big Tech companies hold today in their respective markets. Following the report, President Biden issued an Executive Order with the aim to ensure strict enforcement of his antitrust policies. Biden then appointed Lina Khan, the progressive author of the controversial Amazon’s Antitrust Paradox article, as Chair of the Federal Trade Commission (FTC). Khan was a surprise appointee but a clear indication of the administration’s strong pro-enforcement and pro-competition approach to antitrust. Today, Khan is leading the charge against Big Tech with just one mantra in mind – any harm to competition is enough justification to go after companies that use their size and market power to squash competitors.

For decades, antitrust law has been implemented with the aim to prevent dominant companies from capturing the market. Over the last couple of years, regulators at the FTC and the Justice Department have been aggressively, albeit, unsuccessfully attempting to rein in the unfettered monopoly power of Big Tech using this traditional monopoly theory. In 2020, the FTC sued Facebook alleging that the company had been anti-competitive in its personal social networking market wherein it had a dominant position. But a federal judge dismissed the antitrust suit citing “lack of evidence” on the part of the FTC. Recently, the FTC, led by Lina Khan, refiled the antitrust suit, and in January 2022, the regulator secured a major victory when a U.S. District Judge denied Facebook’s motion to dismiss. The court held that the FTC had enough facts to plausibly establish that Facebook possesses monopoly power and had “willfully maintained that power through anticompetitive conduct.”

But more interestingly, the FTC has now come up with an innovative argument that has not previously been seen in the antitrust ecosystem. Regulators are now focusing less on consumer harm and leaning towards how Big Tech dominance harms businesses that sell goods and services to, and on, tech platforms. Apple, Google, Amazon, and Meta all depend on their suppliers. Whether for ad space on Meta and Google, apps on iOS, or small-scale manufacturers on Amazon, the FTC is taking a strong stance that these platforms are middlemen who by virtue of their powerful hold over the market, are adversely impacting sellers on their platforms. In fact, there is a new word now being thrown around by the regulators – “monopsony”. As opposed to a monopoly, the seller in a monopsony is not the dominant party. Instead, it is the buyer who is the dominant party. Just as monopolists can affect consumers adversely, regulators are arguing that monopsonists can similarly control and adversely affect sellers.

In the eyes of the FTC, Big Tech platforms are abusing their power and position as monopsonists as they are, in effect, proxy buyers for all consumers on their platforms. The longstanding view that vertical mergers usually pose no threat to competition is also being undone by the monopsonist view. It is not essential whether mergers or acquisitions of smaller players make the market more efficient. Rather, it is more important to ensure that Big Tech companies do not accumulate too much power and that competition remains healthy for all consumers and sellers alike. This is especially true where these companies are deciding how the market works, how the pricing is done, and at the same time participating in them. Take Amazon as an example– it creates the rules on how sellers are to participate on its platform, it decides how the goods are displayed on its platform, it further decides on how advertisements are placed, and how delivery charges are to be priced. Moreover, Amazon itself takes part in the marketplace by selling its own products on the same platform. Thus, Amazon wears two hats or maybe even three. This makes Amazon a prime target for FTC scrutiny.

The Biden administration has made it clear that the power these firms possess must be curtailed to promote competition. Amongst the recent changes, vertical mergers are now being scrutinized even more closely. Policies are being implemented requiring firms to obtain multiple approvals before confirming acquisitions with the FTC, having a right to question even after acquisitions close. It is evident that Lina Khan is here to challenge and change the status quo. Big Tech platforms, on the other hand, will not go down without a serious fight. Without serious congressional and legislative backing, Khan will find it hard putting to test her antitrust theories in a system dominated by capitalists, politicians, lobbyists, and the federal courts.

Roughly four years after the collapse of the private equity firm, Abraaj Group, Dubai’s financial regulator has provisionally fined its founder, Arif Naqvi, $135.6m for misleading investors about the use of their funds. Abraaj was once seen as a trailblazer for the industry, providing a path for foreign investors into global emerging markets operating across Africa, Asia, Latin America, Turkey, Central Asia, and the Middle East. Before its collapse, it managed around $14 billion in assets across emerging markets in different funds focusing on different sectors and markets. The collapse of Abraaj––which at its peak was one of the largest emerging markets investors––has sent shockwaves through the region’s financial industry, consequently undermining the Middle East’s regulatory overlook of pooled-investment vehicles.

Dubai Financial Services Authority previously fined two Abraaj group entities almost $315m for deceiving investors, misusing investor money, and carrying out unauthorized activity in Dubai International Financial Centre. Naqvi was central to an attempt to cover up a $400m shortfall across two of Abraaj’s funds by borrowing money for the purpose of producing bank balance statements to mislead investors and auditors. He also arranged a $350m loan from a private individual to make Abraaj appear solvent. The fine, however, as indicated by officials, is unlikely to be paid given the administrators’ inability to raise funds to pay back creditors, who were owed more than $1bn amid Abraaj’s collapse––as Naqvi comingled assets through different funds along with the asset management arm and used limited partners’ funds inappropriately. The shortfall in funds and Naqvi’s cover-up through debt was due to Abraaj’s failed transaction to sell a $1.77bn stake in K-Electric to Shanghai Electric Power. The collapse caused industry executives to be critical of the Dubai authorities for their inertial response during the crisis, claiming that they had failed to protect the financial hub from reputational damage.

After Dubai Financial Services filed claims against both Abraaj Group as a company, and personally against its largest shareholder, Naqvi, the Securities and Exchange Commission (SEC) also filed a claim against Abraaj and Naqvi for defrauding the funds they advised, which had US-based limited partner-investors. This was in violation of the anti-fraud provisions of Section 206 of the Investment Advisers Act of 1940 which prohibits misstatements or misleading omissions of material facts and other fraudulent acts and practices in connection with the conduct of an investment advisory business. But perhaps just as consequential for Naqvi is the Dodd-Frank Act, which provides extraterritorial jurisdiction to U.S. federal courts regarding actions or proceedings brought by the Commission or the United States for violation of section 206 of the Investment Advisers Act.

However, despite the extraterritorial reach of the Advisers Act and the U.S. federal courts, both U.S. investors and other investors from the region are not safeguarded. For example, although the SEC filed a claim against Abraaj and Naqvi, enforcement of that claim remains elusive as Naqvi currently resides in the United Kingdom and is fighting an extradition case to the U.S. to stand trial. Thus, extraterritorial jurisdiction and enforcement of judgments serve as a barrier for safeguarding the interests of U.S. based investors.

Therefore, investors seeking to invest in the Middle East or any emerging market through a private investment pool in places such as Dubai will want more holistic and stringent approaches protecting them. The SEC’s extraterritorial reach is not enough for U.S. investors. Dubai and its Financial Services Authority would need rules and disclosure requirements similar to those required by the SEC. This will restore investor confidence in the Authority as a safe-guarder of their interests in the region, especially after having witnessed the world’s biggest private-equity insolvency as per the WSJ, and the Authority’s subsequent inertial response during the collapse of the firm. For example, the Financial Services Authority could look to the SEC’s recent move to require more private companies to routinely disclose information about their finances and operations. Applying such strict rules and enforcement could potentially prevent the “future Abraaj” from committing fraudulent activities with regards to its funds and provide peace of mind to investors.

Access to capital within emerging markets can sometimes be scarce, especially for risky investments such as start-ups, projects that have significant barriers to entry, or investments that develop the economy. An additional layer of risk with loose pooled investment vehicles will consequently affect foreign investment and development and further damage the Dubai Financial Center’s reputation as a safe haven for investors. If Dubai wants to retain its position within the Middle East and emerging markets, it needs to make an effort to have its new regulatory efforts noticed.

During a time of heightened demand for business, the “pandemic generation” of new lawyers has an unprecedented amount of leverage in the world of big law. This month, Davis Polk joined the handful of top firms—including Millbank, Cravath, Goodwin Procter, and McDermott Will & Emery—offering yet another round of pay increases for incoming associates. Though the compensation competition is alive and well, firms are also prioritizing other aspects of associates’ experience to retain top talent. Progressive hybrid-remote work policies are one of its top priorities.

Long are the days when five days in the office were the status quo for large firms. The pandemic has proven that associates can be just as effective working remotely; thus, it is no surprise that associates are reluctant to give up the flexibility that remote work allows once Covid-19 recedes. In fact, recruiters worry that in-demand associates who feel “bullied” into the office may look elsewhere. “We’re not expecting that people to come back five days a week. Ever,” said Julie Jones, Chair of Ropes & Gray. Although hybrid work is the future of big law, what exactly does that look like?

Many top firms are pursuing an office-centric hybrid approach that requires a fixed number of days in the office. Firms like Skadden, McGuireWoods, and Cadwalader now require associates to come into the office at least 3 times a week. Many believe that this structured approach will allow firms to strike the right balance of flexibility and in-person relationship-building, training, and mentoring, aspects of the associate experience that are especially important for a profession built on an apprenticeship model. In an in-person office setting, facetime with higher-ups and impromptu hallway meetings are easier to come by. There is a stark difference between calling a supervising associate to ask a small question and briefly stopping by their office. Still, firms that intend to adopt more flexible approaches could reap relationship-building benefits by encouraging regular in-person meetings or social activities to naturally lure associates back into the office and facilitate organic meetings.

An in-person requirement may also permit firms to sidestep information exchange hurdles. These obstacles may arise under more unstructured approaches in which in-office days are completely voluntary. Whether firms adopt fixed-day requirements or give associates more leeway, firms must take important preventative measures as it transitions from the remote-only system. For example, although firms utilized various technology platforms to facilitate team communications during the lockdown, it must ensure that the unplanned in-person check-ins are properly documented. This is crucial to keep remote party members informed. Firms will also have to figure out how to handle hybrid calls, whether by asking associates to log in individually from their desks or by re-configuring conference rooms to accommodate the new arrangement.

As Omicron infections continue to decline, firms are eager to resume office re-openings. Reed Smith, Goodwin Proctor, Morrison & Foerster, and Wilson Sonsini are amongst those targeting returns in late February and March. Of course, the details of the new hybrid approach will need constant tweaking, and firms will have to work to ensure that “people don’t get lost in the shuffle” as big law accommodates this new paradigm shift. Little doubt remains, however, that “hybrid work is the future.”

Owning 22% of an S&P 500 company is a nice position to be in. Your goal regarding this investment is to maximize “your” company’s profit (maybe while trying to be a good “corporate citizen”) is clear cut. You advocate for and support market and non-market strategies that lead to those ends. It gets more complicated if you own large stakes of two companies with conflicting interests, let’s say, for example, a wind farm and a coal mine. In that case, what is your stance on clean energy subsidies?

Now imagine owning a significant stake in the whole economy, with all the intricate conflicts this includes.What do you do now? Do you try to maximize each company’s profit? Do take a passive stance, vote with management, and don’t intervene? Or do you try to adapt a holistic view and base your decisions on what would be good for your portfolio overall? This is basically the position the biggest three asset managers, BlackRock, State Street, and Fidelity, are in. As of 2021, they collectively own around 22 % of the average S&P 500 company, and they and commentators alike have wondered how best to balance the interests of their portfolio companies and investors.

Research indicated that large index funds have historically taken a predominantly passive stance and largely voted with management, even when it was underperforming. This might be due to fear of harming share prices by rocking the boat or simply a result of the slim fee structure that most funds have, which means that the high cost of active involvement in any company is unlikely to be offset by an increase in fees.

Others, however, have suggested that big asset managers should pursue a different approach due to their unique position. Their concept of “universal ownership” claims that traditional shareholder focused corporate governance models do not sufficiently take into account that large asset managers are uniquely and unavoidably exposed to so called “external risks.” These risks are especially true for climate change, environmental destruction, and social unrest since they effectively own a large stake in the whole economy. A common point of criticism is that asset managers do not factor those risks in sufficiently. For example, a recent report criticized Fidelity for its continued investment in fossil fuel despite the significant risk that climate change poses for their overall portfolio. Larry Fink, CEO of BlackRock, the world’s largest asset manager with over $10 trillion under management, seems to agree that universal challenges pose a risk for BlackRock’s universal portfolio. Starting in 2018, he emphasized to BlackRock’s portfolio companies that corporations have a purpose beyond the maximizing of short term profits and are responsible to their stakeholders, and therefore should incorporate environmental, social, and governance (ESG) matters into their strategy. Mr. Fink has continued to stress this point ever since, although he specifically emphasized the unique importance of capitalism to create social benefit in his latest letter.

The reason for this change in tone might be that the exceptional influence of large asset managers has come under increasing scrutiny in the last few years. Various academics and pundits have publicly worried that universal ownership might lead to anti-competitive behavior or could incentivize asset managers to influence companies in ways that benefit their overall portfolio but hurt the individual company. Furthermore, taking a pro-ESG stance exposes fund managers to criticism from those who disagree with the fundamental idea of stakeholder-capitalism. This critique is multifaceted. On one side of the spectrum are academics who argue that ESG pledges are either greenwashing, a tool underperforming managers can use to entrench themselves, or that measuring performance on ESG-metrics in a reliable way is impossible, even for the best-meaning managers or investors. On the other side are those who see ESG as nothing more than an ideology and who fear that management would use their power as fiduciaries to further personal beliefs. Critics from both angles are especially suspicious when fund managers like Mr. Fink demand that their portfolio companies implement stronger ESG strategies, given the significant leverage asset funds have over vast parts of the economy.

Therefore, asset managers face a dilemma. They always have the option to continue to pursue a traditional, shareholder-focused governance strategy. However, this means potentially harming their fund’s performance in the long term if traditional portfolio strategies turn out to be superior. And in the short-to-medium term, it is likely to upset ESG-minded activist shareholders and potentially alienate the growing number of retail investors for whom a strong ESG-approach is an important factor when deciding where to invest. Or they can demand that their portfolio companies pursue ambitious ESG-goals. This would pose the problem that – absent established measuring standards – quantifying performance on these metrics might be very difficult, harm their fund’s short-term performance, and expose them to the critique of shareholder-primacy investors and ESG-critics.

08Given a choice between two options with mixed prospects, BlackRock is apparently trying to establish a third option that would let the fund escape from this conflict. In 2021, BlackRock announced that it is going to allow large institutional investors, like pensions and endowments, to vote their shares individually on matters linked to that investment. Through this approach, BlackRock could avoid taking a stand in this issue and relocate the decision to its investors. However, it remains so be seen how BlackRock is going to implement this revolutionary feature, since so far there are not many concrete details. One thing, however, seems certain: large asset managers will continue to play an ever more important role in the economy, and it remains to be seen how their growing influence will shape the governance in the future.

On February 7th, Spirit and Frontier Airlines announced a $6.6 billion merger agreement between the two companies to create “America’s most competitive ultra-low fare airline.” With this merger agreement, the combined company would provide more than 1,000 daily flights to over 145 destinations. The two airlines have similar business models, offering low fares combined with charges for anything extra, including carry-on luggage. Frontier and Spirit believe this merger would increase competitive pressure to provide more consumer-friendly fares. In the press release, it’s estimated that the merged airline would deliver $1 billion in annual consumer savings.

However, many criticize both companies’ business models for their poor consumer experience. Spirit and Frontier respectively had the first and second worst customer satisfaction ratings according to the American Customer Satisfaction Index. The US Department of Transportation also reported that Spirit and Frontier received the first and third highest number of customer complaints in 2021.

The merged company would become the fifth largest airline in the United States behind the “Big Four” of American, Delta, Southwest, and United Airlines. Despite this, those four airlines would still retain 80% of the US airline market, while the merged Frontier and Spirit would control less than 10%. But the Biden Administration’s aggressive approach to regulating antitrust issues signals potential regulatory hurdles ahead.

At the end of 2021, the Department of Justice filed an antitrust lawsuit against American Airlines and JetBlue for combining their operations in several Northeast airports. The Justice Department’s suit called that alliance a “de facto merger” and said that the arrangement would reduce incentives to compete in the Northeast region, harming consumers across the country with higher fares and decreased flying options. The American Airlines-JetBlue alliance would pool their gates and takeoffs; coordinate routes, schedules, and aircrafts; and share their revenues at the three main New York airports and Logan International in Boston. While not a true merger between the two airlines, but the Department of Justice treated it like one. Given this precedent, it seems very likely that the Biden Administration will either highly scrutinize the Frontier-Spirit merger or altogether attempt to block it on antitrust grounds.

The record-breaking levels of M&A activity and the highly monopolized nature of the U.S. airline industry might also explain the Biden Administration’s tough stance. Global M&A deals increased by 63% to $5.63 trillion in 2021. The United States accounted for $2.5 trillion of that total. Vanita Gupta, a Justice Department official, recently announced at an antitrust symposium that “if your company approves a merger that may lessen competition, we will block it.”

The airline industry became highly consolidated in the last 25 years through a series of mergers, resulting in the four largest airlines in the United States we have today. If the Frontier-Spirit merger goes through, it would be the first airline merger since 2016, when Alaska Airlines purchased Virgin America. This high level of consolidation might explain the anticipated regulatory barriers Frontier and Spirit face.

With such a small combined market share, the Frontier-Spirit merger typically wouldn’t attract large regulatory attention.  However, for the reasons stated above, this merger may have an uncertain future. Frontier would be purchasing Spirit in this deal, but both companies saw only modest increases in their share prices on the day the merger was announced, indicating investor wariness. The companies expect to have the merger close in the second half of 2022.

Nickel has long been a critical resource for modern life and, because of its importance for many technologies that are central to the energy transition, demand is only rising. The recent and increasing use of nickel in electric vehicles (EVs), expected to reach 30% of total nickel consumption, tracks increases in production and sales of electronic vehicles (EVs) in the US and elsewhere. Though the US was an early leader in EVs, it has been falling behind China and Europein recent years. Expanding its access to nickel could help the American EV market take back some of its market share and support the US’s broad and growing array of limited and zero-emissions policies.

Recognizing the growing importance of nickel, Indonesia, which currently has the world’s largest nickel reserves, has been working to foster and protect its growing nickel industries. Starting by prohibiting the export of low grade nickel, recent regulations have focused on building a domestic nickel smelting industry and creating more value before the nickel leaves Indonesia. These policies will help Indonesia retain more of the profits from the global nickel trade and lead to Indonesia becoming a major seller of high grade, Class 1 nickel (used in EV batteries). These policies have been working and there has been a surge in new refinery projects in Indonesia.

Some American actors have been making moves towards extracting more nickel from Indonesia, but nothing is set in stone yet. Most publicly, Tesla expressed interest in accessing Indonesian nickel for its EV batteries, but no progress towards a deal has been reported. A major sticking point in Tesla’s proposal, which aimed to purchase unrefined nickel ore, was Indonesia’s firm commitment to keeping refining processes in Indonesia.

International investors have recognized Indonesia’s hardline stance on developing its domestic capabilities and turned their attention to Indonesian nickel refining, with multiple Chinese companies already investing. Such projects help international investors capture some of the significant value added through the refining process, as well as to secure access to the final, refined product in an increasingly competitive market for high grade nickel.

The US currently gets most of its nickel from Canada, Norway, Australia, and Finland, suppliers which have, historically, met American demand. For the moment, neither the US itself nor American companies have any investment partnerships with Indonesian nickel producers. Additionally, the cost and regulatory complexity of transporting the chemicals needed for the refining processes across the Pacific Ocean provides some economic disincentive for the US to invest in Indonesia – a barrier Chinese investors don’t face.

However, as the need for nickel continues to rise, American companies will need to look to Indonesia and, it is increasingly clear, cede to Indonesia’s terms on extraction and investment. Because of Indonesia’s increasingly strict regulations of nickel ore export, it will soon be critical to have a foothold in the country to be able to capture refining value and retain access to a sufficient supply of nickel to meet ever-growing American demand.

In late January, Neil Young came across an open letter published earlier in the month from a group of scientists and healthcare professionals urging Spotify to address what they deemed false information about Covid-19 vaccines on Joe Rogan’s podcast. Soon after, Young wrote a letter titled “They Can Have Rogan or Young. Not Both” to his manager and record label, demanding Spotify to remove his music from the platform over “false information about vaccines.” Two days later, Spotify obliged.

Over the past few years, Spotify has been aggressively pushing into the podcast industry to differentiate itself from other services and to become more profitable. In 2019, Spotify’s Chief Executive, Daniel Ek, wrote a blog post illuminating the company’s transition from a typical music streaming platform to a comprehensive audio platform, expecting podcasts to play an important role. In 2020, Spotify spent over $100 million to exclusively host The Joe Rogan Experience. Since the beginning of the deal, Rogan has emphasized that he and his team maintain control over the show. Spotify does not produce or edit the show, approve guests or topics, or review the content before it goes live.

Choosing Rogan over Young was a straightforward business choice for Spotify. The Joe Rogan Experience is currently the No. 1 show on Spotify in 93 markets. The show has been crucial to making Spotify the top U.S. podcast platform by listeners. The company’s internal research suggests Rogan’s listeners are highly engaged and tend to return to Spotify to listen more, including other content beyond the show.

Initially, Young’s ultimatum did not feel like a new crisis at Spotify. Rogan’s podcast sparked tensions inside Spotify as early as September 2020 when some employees expressed concern over the podcast’s content during a town-hall meeting. These concerns related to material they felt was anti-transgender. However, the controversy finally crossed into the mainstream when other artists and podcasters followed Young’s lead. Even Prince Harry and Meghan Markle, who have an exclusive multiyear podcast deal with Spotify, issued a statement expressing concerns over misinformation tied to the COVID-19 on the platform. Attempting to address the issue before it snowballed, Rogan posted a conciliatory video, pledging to be more careful in how information is presented on his show. Spotify promised to begin tagging COVID-19 related content with an advisory pointing users to a health-and-science information hub.

The crisis escalated after a compilation video emerged of Rogan using a racial slur in previous episodes over 12 years of his podcast. Joe Rogan apologized, but many commentators found the apology insufficient. According to Mr. Ek, Spotify spoke with Rogan about the content in his show, “including his history of using some racially insensitive language,” and Rogan “chose to remove a number of episodes from Spotify.” As of February 4, Spotify removed more than 100 episodes from its platform. Even so, Mr. Ek insisted that he did not believe that silencing Rogan was the answer, and he stood by Spotify’s gamble that Rogan’s show would attract more listeners than it’d repel.

Ultimately, the ongoing controversy points to a trickier emerging problem: whether audio platforms like Spotify are beginning to look like social media, but without the content control. Just like Facebook and YouTube, Spotify started as a tech platform indifferent to what it hosted. However, as its business strategy shifts, Spotify is now moving toward being a media company responsible for what it distributes, and is inevitably confronting difficult decisions about content that can spark heated reactions from listeners, employees, artists and podcasters. Today, Spotify hosts about 3.2 million podcasts, and the vast majority of which are created by amateurs who upload their contents to Spotify as easily as they would to a social network. With RSS feeds, once a podcast has been produced, it appears immediately on platforms when searched.

Spotify, a 16-year-old company, published its “platform rules” only after the Rogan controversy exploded. Even Mr. Ek acknowledged that the company has not been transparent around the policies that guide its content more broadly. As a result, the Rogan Crisis spurred Spotify into a content moderation frenzy because there were not any bright line rules in place. In recent weeks, Spotify deleted 20,000 other podcast episodes over Covid misinformation. This reveals that Spotify has extreme discretionary power over amateur podcast hosts who don’t have the same kind of social capital as Rogan. All too often, the view­points of many historically excluded groups, such as BLM activists, LGBTQ+ communities, and religious minorities, are at risk of over-enforcement, but the censorship may go unnoticed because those podcasts are so small. Furthermore, this arbitrary content moderation poses risks that may having a chilling effect, resulting in more careful deliberations by podcast hosts and guests, and ultimately steering creators clear of controversial, yet important, topics.

Audio platforms have been a massive blind-spot under the content-moderation radar. Moderation task for audio poses more challenges than for text, images, or video. Spoken word content can be analyzed with actual human ears or using natural language processing techniques, but it is often prohibitively expensive to transcribe huge amount of content. Even if the audio is transcribed, it will still be challenging for an automated system to understand the nuance of the content and draw the line between someone’s opinion versus spreading misinformation. From an infrastructure perspective, the nature of the RSS feed, which is open-sourced and accessible by design, represents a significant hurdle for content moderation.

Ready or not, as Spotify opens its gates to more user-generated content, the same old free-speech battles are coming to audio. Just as Mr. Ek pointed out in an memo to Spotify employees, Spotify “should have clear lines around content and take action when they are crossed, but canceling voices is a slippery slope.” For Spotify, these kinds of disputes will be ongoing and inevitable. Perhaps the best thing it could do now is to get its rules straight, so the public knows what circumstances, processes, and remedies are available when content is modified or deleted.

The interactive fitness company Peloton has been recently caught in the midst of turmoil amid investors’ accusations of gross mismanagement. The claims being made focus on poor decision-making by top executives, along with the lack of a clear long-term strategy for the company’s growth and abysmal returns for Peloton’s shareholders. Peloton, on its side, tried to discard allegations of mismanagement and attributed the dissatisfying financial performance to a seasonal downturn caused by an inversion of trend following the spike in sales driven by “stay-at-home” orders (issued worldwide during the earlier phases of the COVID-19 pandemic).

Despite Peloton’s efforts to ease pressures on its top executive, a hard-hearted presentation prepared by the privately held investment firm Blackwell Capital caused the ex-CEO John Foley – who is still keeping his hold on Peloton thanks to ownership of super-voting shares – to step down and be appointed as executive chair of the company. The issues raised by Blackwell followed worrisome data from the last quarterly reports indicating a declining financial performance (Peloton’s one-year stock price was down 85% since February 2021), coupled with a loss in “active users” among Peloton’s subscriber base. Consequently, Blackwell is currently pushing towards a strategic sale of the company to a potential new acquirer to solve its existing financial and managerial problems.

In the context of its presentation, Blackwell suggested several potential acquirers for Peloton, among which companies like Apple, Amazon, and Nike. None of such companies has approached Peloton for a potential acquisition, even though Amazon and Nike started exploring the possible scenarios involving a takeover. The Financial Times also reported considerations of people informed on the matter, deeming the decision to acquire Peloton as seemingly “opportunistic” due to the recent steep decline in the company’s market value. Indeed, interest in the company appears to be driven by Peloton stocks being currently undervalued. With that in mind, a Peloton deal could provide Nike and Amazon with appealing opportunities to strengthen their revenues and acquire a strategic workforce. Similarly, a Peloton takeover would prove to be for Amazon an effort to increase its business presence in the e-fitness industry.

Despite all the hype around a potential takeover, some practical obstacles remain. First, Peloton’s valuation is far from generating consensus. Blackwell evaluates Peloton’s share price at a minimum of $65 – a figure that does not correspond to the sentiment of the rest of the market. Second, former CEO Foley appears resistant to any sale, which may pose a significant threat to the possibility of getting a deal done (Foley remains executive chair of the company and owns super-voting shares which allow him to exercise control on the company).

However, let us not rush to conclusions. Peloton announced on February 8 a series of steps as part of a comprehensive program aiming to decrease costs and result in “long-term growth, profitability, and free cash flow,” suggesting that the company intends to recover on its own before considering an acquisition. The first step in this ultimate effort to avoid selling the company to the best offeror consisted of a major internal reorganization, initiated with the appointment of ex-Spotify-and-Netflix CFO Barry McCarthy as new CEO. “Peloton is at an important juncture, and we are taking decisive steps… This restructuring program is the result of diligent planning to address key areas of the business and realign our operations so that we can execute against our growth opportunity with efficiency and discipline,” said John Foley.

Amongst the restructuring measures announced, Peloton will suspend its plans to build its own manufacturing facilities in Ohio, which should result in $60 million in restructuring capital expenditures. The construction of Peloton Output Park was indeed expected to start in summer 2021 and had initially been scheduled to open in 2023. This project would have cost an estimated $400 million. Instead, Peloton intends to minimize expenditures on in-house warehouses and delivery centers to rely mostly on third-party logistic providers. The other significant measure announced to place Peloton for sustainable growth will be job cuts of approximately 2,800 positions, the equivalent of 20% of the company’s workforce. The company said this will impact “almost all operations across almost all levels“. When implemented, these restructuring initiatives are estimated to yield around $800 million in annual run-rate cost savings in 2022,  along with a decrease in capital expenditures by approximately $150 million. If Peloton implements these changes correctly, it may be enough to keep the wheels spinning.

The issue of corporate social responsibility represents a long-lasting debate in academia and the corporate world, with solid arguments on both sides. One side claims businesses should operate for the sole purpose of increasing their profits. The other side advocates that corporations have to embrace goals of public benefit. For now, decisions about corporate purpose still remain the prerogative of directors and investors.

However, sometimes corporations create services and technologies that transcend business interests and become essential to our existence, inherent to social cohesion, and the exercise of civil rights. For example, during the Arab Spring, Facebook became more than just a social network––it was the main platform for freedom of expression, communication, and organization of protests, which were otherwise banned or restricted in those countries. In many parts of the world plagued by dictatorships, repressive regimes, and failing democracies, Facebook, Twitter, Google, and Apple became popular not just because they offered a “cool” product, but because they brought opportunities to access information, speak freely, and organize against oppression. Authoritarian governments couldn’t create such platforms, and these markets soon provided Silicon Valley with another competitive edge.

But recently we have been witnessing concerning developments. Big tech companies are making more and more concessions to authoritarian regimes around the world in desperate efforts to keep their businesses running there. An increasingly unsettling question is whether corporations will adhere to the values they promote, such as progress, free speech, and diversity––or will they ultimately bend to the whims of oppressive regimes? To borrow from Professor Colin Mayer, can big tech companies “solve the problems of people profitably, and not profit from causing them?”

As an example of this disconcerting trend, we can look into the recent federal elections in Russia where Google and Apple were forced to remove an opposition-created app from their stores called Navalny amid increasing pressure from Russian authorities. The app was meant to coalesce opposition votes against “United Russia”––the pro-establishment party––through a system called “smart-voting,” which many thought was the only efficient tool to withstand the enormous pro-government machinery.

Despite oppressive laws and restrictions on protests and free speech in the country, the Russian internet remained mainly untouched and uncensored. As a result, it became the last stronghold for anti-regime advocates. Now it stands to fall, not without the help of Google and Apple. Access Now, an internet freedom group, declared that “[t]his is bad news for democracy and dissent all over the world. We expect to see other dictators copying Russia’s tactics.”

The tech giants defend this decision as necessary after Russian courts found Navalny’s organization as being extremist, banned the app, and threatened to initiate a criminal investigation against local employees of Google and Apple. However, skeptics claim that this is just an excuse to mask Silicon Valley’s ulterior motive: to continue business in Russia.

This is not the only “compromise” between big corporations and authoritarian regimes. In 2016, Google and Apple removed the LinkedIn app from their stores after a Russian court banned it due to a regulation which mandates data be stored within national borders. Earlier this year, Apple had made another concession to the Kremlin when it decided to obey a law which required Apple to include in its products a pre-installed package of “state-approved” software, such as browsers and messaging apps. Freedom House, an international non-profit, declared that “[t]his is part of a broader trend we’ve seen in countries like Iran, Turkey, and India, where authorities are trying to replace frustrating foreign apps with domestic equivalents, more tightly controlled by the government.”

Twitter, YouTube, and Facebook also routinely remove some of their content in many authoritarian countries based on court decisions, requests from authorities, or national laws and regulations. For instance, in 2016 the New York Times reported that Facebook was developing censorship features to access the Chinese market. Those intentions did not materialize since Facebook is still banned in China, but the willingness of big tech corporations to please authoritarian governments for a chance to reach their markets speaks for itself.

From this perspective, the debate on corporate purpose is more important than ever. What in Silicon Valley may be just a marketing strategy for profit maximization, on the other side of the world could mean a lot more. What might be a pure business decision for Apple or Google, may be a chance to fight for free elections in Russia, stand against oppression in Turkey, or advocate for women’s rights in Afghanistan.

Corporate culture and insurance regulation are traditionally not considered in tandem. However, after the Global Financial Crisis (GFC), it has been concluded that the responsibility and ethical standards have been eroded in the context of a “[t]one from the top … [and that] [n]o one said ‘no’.” In Europe, this led to a significant regulatory proliferation. In this vein, European Parliament’s recital 29 Solvency II Directive acknowledges that an effective system of governance is essential for the adequate management of insurance companies. In the broader context of corporate governance, corporate culture is vital.

At present, corporate culture is gaining attention in the context of corporate finance but has yet to achieve such attention in insurance regulation. Some define corporate culture as “[a] prevalent attitude or atmosphere created by a company’s rules, policies, practices […], and communications from management, such as those touching on compliance or noncompliance with legal requirements.” Contrastingly, scholars emphasize that defining corporate culture is challenging, if not impossible and that culture is just “a mental construct.” Amidst its subjective and initially imperceptible character, one has to look at its elements, such as a company’s values, norms, conventions, customs, traditions or knowledge.  In essence, corporate culture affects a company’s risk-taking and ethics, and is essentially important for the decision-making process on various levels. Is paying more attention to corporate culture also important in the insurance regulatory context?

A major take-away from the GFC was that corporations suffered from lapsing ethics and insufficient leadership. For insurance companies, this is particularly concerning due to the pivotal role they play in our societies. The focus on their culture, consequently, cannot be overstated. A supervisory focus on insurer culture can enhance the regulated entities’ ability to effectively pursue the regulatory goals. For instance, under European law, insurance companies are subject to rigorous remuneration requirements to avoid short-term compensation, which incentivizes board members in taking too high of risks.  Sound culture can lead to less risky and more sustainable remuneration practices, and thus, enhance prudential insurance business. In sum, proper values and proper business conducts exemplify the intersection of both corporate culture and regulatory corporate governance.

The importance of insurer culture is also emphasized by the Draft Issues Paper on Insurer Culture of the International Association of Insurance Supervisors (IAIS) from June 2021. Accordingly, culture is “the set of norms, values, attitudes and behaviours of an insurer that characterizes the way in which the insurer conducts its activities.” The paper further states that “[e]ffective insurer cultures are pivotal to strengthening and maintaining public trust and confidence in the sector as a whole.”  Therefore, understanding an insurer’s culture will lead to better and more effective supervision from a prudential angle.

Even in the US, regulators are beginning to focus on insurer culture. On the occasion of the National Association of Insurance Commissioners (NAIC) annual fall meeting in 2021, a commissioner noted that “culture is a cornerstone to an insurer’s … risk management framework”. In Europe apparently, the European Insurance and Occupational Pensions Authority (EIOPA) has not deliberately looked at insurer culture yet, rather focusing on a common supervisory culture among EIOPA and National Competent Authorities.

After all, paying more attention to corporate culture is important in the insurance regulatory context. Both the US and Europe need to work on embedding insurer culture in their regulatory and supervisory scheme. Especially, since technology and digitalization are disrupting the insurance business. The cultural ideals that technology firms embrace are likely to be quite different from the ones of traditional insurance companies. Without regulatory and supervisory consideration of insurer culture, the industry could become more risky and less sustainable as these technological ideals spread within the market. For regulators, it could be helpful to recur on the Insurance Core Principles (ICPs). For instance, these principles require insurance companies to set and oversee the implementation of an insurer’s corporate culture (ICP 7.2) or include the promotion and sustainment of a sound risk culture in an effective risk management function (ICP 19.2). At the same time, supervisors will face the major hurdle to actually getting a hand on the culture of an insurance company. Because this is typically like an iceberg, largely hidden and imperceptible supervisors and supervised will have to work closely together not only to allow greater supervisory compliance, but also, to achieve sound culture and, ultimately, better insurance business.