Rock star bosses

It was January 2000 and David Bowie had just finished touring his latest album, Hours, when he decided to pursue a completely different project: internet banking. The world was in the grip of the dotcom bubble, and after a middling attempt at producing a techno record the chameleonic British rock star wanted to try being a tech entrepreneur. 

First came his company UltraStar, which built fan sites for Bowie and other artists such as The Rolling Stones, followed by an internet service provider, BowieNet. Then he teamed up with Nasdaq-listed lender USABancShares.com to create BowieBanc.com, an online bank that not only offered customers a free subscription to BowieNet, but also cheques and debit cards branded with Bowie’s face.

The bet was that fans were so enthralled with the musician that they would be willing to bank their money on a man who was largely unproven in the finance industry. But three months later, Forbes reported that BowieBanc had picked up only 1,500 accounts, with an average deposit of less than $2,000 (£1,444). The following year, USABancShares’ stock price plunged along with other tech companies in the dotcom crash, and it was bought out at just 60¢ per share – 3 per cent of the peak value. Bowie’s tech empire crumbled not long after.

The rise and fall of Bowie Inc was a warning to anyone willing to bet their savings on little more than a charismatic businessman with a novel idea. As one fan told MTV at the time: “David should stick to art and let the [bankers] shuffle the money around.”

The era of the rock star entrepreneur, however, was only just beginning. Less than two decades later, the tech sector has regained its hold on the markets, and some of the world’s most recognisable faces are once again leading the charge.

As well as fronting their companies, these poster boys of big business are producing hit records, starring in movies and now even travelling to space. Elon Musk, the Tesla (US:TSLA) chief also known for dating Hollywood actresses and smoking marijuana during a live web show, released a dance track last year that made the top 10 chart on streaming service SoundCloud. Jack Ma, founder of Alibaba (US:BABA) and more recently the lead actor in the 2017 Jet Li movie ‘Gong Shou Dao’, celebrated his company’s 20th anniversary by performing in a rock concert attended by 80,000 people.

But unlike Bowie, these rock star chief executives (CEOs) are entrepreneurs first, musicians last: they became pop culture icons largely thanks to the huge success of their businesses. The vast wealth and recognition this has brought them has not only attracted thousands of loyal disciples, but also boosted their companies’ market value as fans buy shares to express their admiration.

Now the soaring stock prices of celebrity-led companies are drawing envious looks in the UK, where no internationally famous rock star CEOs have emerged since the collapse of Bowie’s ventures – although Richard Branson still makes plenty of headlines. In June, James Anderson of Edinburgh-based Baillie Gifford, one of the most prominent investors in Tesla and Alibaba, told the Financial Times there was a “deep sickness” in UK markets.

Britain needs “one or two individuals” who can blaze an entrepreneurial trail, he added. “When will some of these people suddenly occur?”

His frustration is apparently shared by some in Westminster, where policymakers are currently considering how to lure the next Musk or Ma to the UK. To this end, a government-backed review by the former EU financial services commissioner, Lord Jonathan Hill, recently called for more dual-class share structures that would allow founders of London-listed companies to retain greater control over their businesses. This would put the City on more of a regulatory footing with the financial capitals currently favoured by world-famous entrepreneurs, although it would also overhaul the high governance standards that have long been valued by UK investors.

The plans have been welcomed by some in the domestic tech sector, but critics question whether looser standards would be enough to entice trailblazing entrepreneurs away from Wall Street and Hong Kong. They also warn that politicians and investors should be careful what they wish for: rock star CEOs bring risks as well as rewards.

‘Being very British about it’

Have you ever wanted to find the “daddiest photo of Elon [Musk]”? Or the best picture of the multibillionaire’s “arms and hands and jawline”? There is a Tumblr page for that.

Elon Musk Fans, a blog on the popular social media site, is a space for his followers to share and discuss their favourite photos of the Tesla chief. The page, which according to its creator has 15,000 followers, is just one example of how the internet is bringing together thousands of CEO groupies for the first time. While celebrity entrepreneurs are not a new phenomenon, this network effect has helped some achieve a level of fame that was previously unheard of in the business world.

No CEO has harnessed social media’s self-promotional power more effectively than Musk, currently the 18th most-followed person on Twitter (US:TWTR) ahead of pop stars Britney Spears and Shakira. While only occasionally engaging with the traditional news media, the self-proclaimed “technoking” of Tesla uses Twitter daily to share his personal and entrepreneurial achievements directly with his loyal band of retail traders, and by rallying them has been able to add millions to Tesla’s market value with a single tweet. 

Musk is far from the only CEO using the internet to their advantage. Jeffrey Lovelace, a professor at the McIntire School of Commerce and a research fellow at Oxford University’s Centre for Corporate Reputation, says public acclaim of the most recognised CEOs “has been building over the last couple of years”, as they utilise social media to fine-tune their image.

But these CEO influencers tend to be based outside the UK, a country where top business leaders often remain uncomfortable with publicising their personal thoughts online. While the pursuit of wealth and success has long been romanticised in the US, such flagrant self-promotion still does not sit well with most Brits.

The majority of British entrepreneurs “are not really that distracted by the glamour and the lights of the TV”, says Tony Spillett, an adviser to UK tech companies at consultancy BDO. “The British tech entrepreneur is, dare I say, being very British about it and just getting on with things.”

However, what the UK lacks in headline-grabbing personalities, policymakers now hope it can make up for with a regulatory shake-up. Released in March, the Hill review has proposed opening up for the first time the coveted premium section of the London market to businesses that opt for dual-class share listings, meaning their founders would be allowed up to 20 votes per share in company ballots. The recommendations, published at the request of chancellor Rishi Sunak and now backed by the Financial Conduct Authority, were explicitly aimed at “closing a gap” with countries such as the US, where for years similar structures have allowed leading entrepreneurs to retain considerable control over their publicly-listed businesses.

Although controversial, this has been applauded by many business leaders and investors, who argue that the reforms are necessary not only to lure more start-ups away from Wall Street, but also incentivise more homegrown tech founders to go public. Over the past five years, the UK has accounted for just 5 per cent of IPOs globally, while research published by BDO in March found less than 4 per cent of the UK’s fastest-growing tech businesses of the past two decades had listed in London.

“[The UK] has no shortage of high-quality entrepreneurs,” says Spillett. But the Hill review “is a significant step in the right direction to get UK tech into the market”.

‘The worst IPO in history’

In March this year, Will Shu was preparing one of the UK’s best-known technology companies for a public listing. It was eight years since he founded Deliveroo (ROO), the food delivery business that had rapidly grown from a scrappy start-up to an international corporation operating in 12 countries. Now Shu, an American who still makes a show of delivering meals for the company, wanted the public markets to help it grow further – but he was not quite ready to relinquish control.

Deliveroo was opting for a dual-class listing in London, a decision that currently prevents it from entering the prestigious FTSE 100 index but that meant Shu could control 57 per cent of the company’s voting rights with less than 7 per cent of its shares. While hailed by the chancellor as a landmark moment for homegrown tech, given the timing the IPO was also seen as a test for the future of these share structures in the UK.

The listing, which eventually took place on the last day of the month, was a flop: Deliveroo’s shares plunged more than a quarter on their first day of trading. One of the company’s own bankers reportedly derided it as the “the worst IPO in history”.

Deliveroo had a few problems: it is still lossmaking, food delivery is an incredibly competitive market and regulators are clamping down on gig-economy companies. But its decision to concentrate so much power in a single pair of hands was apparently the sticking point for many of the UK’s largest fund managers, some of whom have publicly railed against Lord Hill’s recommendations. The Deliveroo IPO was their opportunity to push back.

Deliveroo has said its dual-class share structure is “time-limited”. The Hill review itself suggested a limit of five years, while adding that founders should only be permitted to use their voting powers for preventing takeovers or their own removal as director. This, it argued, would give innovative entrepreneurs the freedom to continue executing “their vision for how the company should evolve”.

But despite these safeguards, investors fear the proposals could put London on a slippery slope, undermining the principle of 'one share, one vote' in a market that has long been praised for the strong protections it offers investors. Legal and General Investment Management, the UK’s largest fund manager, has reportedly lobbied against the recommendations. The Universities Superannuation Scheme, the country’s biggest private pension manager, warned against a regulatory “race to the bottom”.

Underlying this outcry is also the concern that powerful CEOs often do more harm than good, particularly if they later become household names. The long-term benefits for investors in dual-class listed companies are inconclusive, according to the CFA Institute: some studies find they outperform, while others find the opposite. A 2018 paper by Lovelace and other researchers highlighted that, on average, celebrity CEOs were found to negatively impact companies’ financial performance.

“It really benefits executives that achieve this level of celebrity. They are protected from dismissal… they can influence the board to more extent,” says Lovelace. But “it becomes more difficult to put checks on them if they are doing things that are not in the interest of the company”.

A few weeks after Deliveroo’s disastrous public debut, UK fintech business PensionBee (PBEE) also listed on the London Stock Exchange. It did not opt for a dual-class listing: its shares jumped 7 per cent in their first week of trading.

“We found [London] to be a very attractive venue because of the high level of governance that is afforded to investors,” says the company’s founder and CEO, Romi Savova. “It seems questionable to [challenge] this principle that has existed in London so long and enhanced the reputation of London as a venue.”

Do you want to be a rock star?

On 12 July, Musk entered a court in Delaware, the state where his company, like many listed US businesses, is legally based. He had come there to prove something that many of his fans may have struggled to believe: that the technoking does not control Tesla.

Musk was being challenged by some disgruntled shareholders, who allege he strong-armed Tesla’s board into allowing a takeover in 2016 of SolarCity, a business Musk also founded. The acquisition was not in the interests of Tesla investors, they claim, and was used by Musk to bail out the struggling solar energy company.

Musk’s lawyers had some points in his favour: at the time he owned just 22 per cent of Tesla stock, and the deal was approved by the majority of investors in a vote. But the suing shareholders had a counter-argument: as the public face of Tesla, Musk was able to dominate the company’s decision-making process through the sheer force of his persona. The power of the rock star CEO, in other words, did not come from the company’s formal governance structure. 

The court case, which could take months to conclude, raises a troubling question for lawmakers in Westminster: if having the majority of votes is not requisite to being a world-beating entrepreneur, will loosening UK standards even entice them to London?

Musk did not opt for a dual-class listing when taking Tesla public, although this was an option in New York. While Ma and other tech CEOs such as Facebook’s (US:FB) Mark Zuckerberg did, this is far from the only regulatory advantage that has enabled them to pursue their vision. Labour laws and privacy protections are weaker in many countries outside the UK: are British regulators also prepared to lower standards in these areas?  

“You do have to wonder if there is more to dual-class share structures as to why companies choose listing venues,” says Savova, who adds the proposals will not incentivise entrepreneurs to pick London over Wall Street, the “deepest capital market in the world”. Rather than try to align itself with other countries, she suggests, the UK could set itself apart by becoming a more attractive destination for the world’s female-led start-ups, which received less than 3 per cent of venture capital funding globally last year, according to company data provider Crunchbase.

Spillett acknowledges that Lord Hill’s proposals may not even be enough to encourage many London-based entrepreneurs to list in the City, where private equity has established itself as the go-to route for tech companies looking for funding. He adds that roughly 80 per cent of the conversations he has with UK tech businesses about near-term funding focus on private equity. For more media-shy Brits, this will always be the more attractive way to raise money.

Ultimately, many UK entrepreneurs do not want to be celebrities and investors seeking long-term sustainable growth will probably be content with that. For her part, Savova thinks there should be room for a range of personalities and aspirations in entrepreneurial culture.

“I have two small kids so I spend a lot of time with them aspiring to be a good parent,” she says. “There is less time left to focus on being as famous and as Twitter-influential as a rock star.”