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Leadership
The ‘responsibility paradox’ in era of sharecropper capitalism
Published January 14, 2025 in Leadership • 10 min read • 
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Many new businesses have emerged in recent years with few employees, no roots in the community, and heavily reliant on Big Tech for survival. How does this square with the demands for responsible leadership?
Two decades ago, I wrestled with the paradoxes of corporate social responsibility, where businesses were called on to be good citizens who looked after their employees and communities, even as they were outsourcing core parts of their operations and abandoning their attachments to any particular place. Exemplars of good corporate citizenship, such as Eastman Kodak and Westinghouse, fell by the wayside as enterprises with few employees or physical facilities rose. What did this portend for responsible leadership when enterprises were increasingly “placeless” and ephemeral?
Today, a new system is emerging out of the rubble of 20th-century corporate capitalism, where Big Tech controls the pathways of economic and social interaction. The tech giants were briefly threatened by the assertive antitrust agenda of the Biden administration, but the recent US election is likely to leave them unfettered. At the periphery is a burgeoning sector of millions of tech-enabled smaller enterprises, which exploded during the COVID-19 pandemic. Their existence depends fatefully on tools provided by Big Tech. Call it sharecropper capitalism (or techno-feudalism, as the economist and politician Yanis Varoufakis labeled it). At the same time, we are seeing the hardening of national boundaries and perhaps a reversal of globalization. What this means for corporate responsibility will be decided in the coming years.
What is the ‘responsibility paradox’?
In our 2008 article for the Stanford Social Innovation Review, my co-authors and I had drawn attention to a defining feature of 21st-century corporate capitalism: the “responsibility paradox.” On the one hand, global corporations had become intangible and dispersed, with operations and legal identities spread around the world and the increasingly pervasive use of outside contractors. As we pointed out: “Tommy Hilfiger had its corporate headquarters in Hong Kong, its legal incorporation in the British Virgin Islands, its shares on the New York Stock Exchange, its annual meeting in Bermuda, and most of its manufacturing in Mexico and Asia. Likewise, Royal Caribbean International has its headquarters in Miami; registers its ships in the Bahamas, Malta, and Ecuador; and is legally incorporated in Liberia, where it is subject to neither Liberian nor US income taxes.” Corporations were skilled at fine-tuning their legal domiciles and corporate boundaries to avoid taxes and unwanted regulations, all in the name of creating shareholder value. They were, as Martin Wolf put it, “rootless cosmopolitans”.
On the other hand, corporate leaders faced rising pressures for social responsibility. “Socially responsible” investment had grown from a fringe movement to a major force in the capital markets. Activist shareholders demanded transparency from corporations. Consumers held companies accountable for environmental and human rights issues in their supply chains and even for the actions of countries that housed their operations. Tax authorities questioned why many major companies claimed so much of their global profit in Ireland.
“Tommy Hilfiger had its corporate headquarters in Hong Kong, its legal incorporation in the British Virgin Islands, its shares on the New York Stock Exchange, its annual meeting in Bermuda, and most of its manufacturing in Mexico and Asia.”
The dilemma was acute: corporations were increasingly vague entities, yet stakeholders demanded accountability. How were leaders of 21st-century enterprises going to address this challenge?
We concluded that global corporations would likely be governed by different standards for different issues. Environmental and product safety standards would be most assertively regulated by the EU because any company that did significant business in Europe would find it easier to raise the bar for their global operations to the European standard, which was generally the highest legal requirement. Corporate governance would be driven by the US because global corporations were attracted to the vast and liquid American capital markets and would be willing to accept the requirements this imposed – by 2005, all but two of the 25 largest global corporations were listed on the New York Stock Exchange, and thus subject to American securities regulation. Lastly, we predicted that international NGOs would be the dominant force in shaping human rights standards.
New challenges for responsible leaders
In the nearly two decades since our article was published, the trends we highlighted have metastasized with the relentless digital revolution. Identifying the stakeholders to whom businesses are responsible has grown more puzzling as company boundaries have become ever more provisional, enabled by new technologies and lax regulation. The responsibility paradox has grown even more acute.
Traditionally, the list of corporate stakeholders included employees, customers, investors, suppliers, the communities where operations were located, and the public. However, the 1990s brought widespread “Nikefication”, in which corporations contracted out core parts of their operations to external vendors around the world. This started with garments but spread to electronics and even heavy industries like autos. And it has not been limited to production: companies contracted out payroll, accounting, IT, and other professional services while new software-as-a-service (SaaS) providers proliferated.
Were corporations responsible for employees of vendors one or two steps back in the supply chain? What did Tommy Hilfiger owe to its “communities” in Hong Kong, Mexico, or the British Virgin Islands? What does a lawn care company owe to the anonymous town that hosts the server farm leased by its HR partner? Nikefication has expanded to the point that many enterprises today have almost no employees and no physical establishments. Even auto companies like the late Fisker Automotive contracted out so much of their work that the corporation had fewer than 1,000 employees.
The iPhone arrived just as our article was published, and smartphones quickly became ubiquitous. This enabled new business models that further accelerated the hollowing out of the corporation.
Take employment. GPS-enabled smartphones and lax regulation enabled a model of engaging labor that explicitly relied on classifying workers as contractors and not employees to escape obligations for safety, equity, and fair pay. Uber is the most visible example of this tech-enabled, employee-lite model, but many others exist. According to its most recent annual report, the food delivery platform DoorDash has more than seven million “dashers” (non-employee delivery drivers) but only 19,300 employees globally – its labor force includes 350 contractors for every employee. Of course, the business model requires excluding contractors as “stakeholders,” so the circle of obligation is fairly narrow. More traditional employers have adopted a similar approach to limiting headcount. In 2019, the New York Times reported that Google had 102,000 employees but 121,000 temps, vendors, and contractors (TVCs). In other words, most of those who worked at Google were contractors and not employees, and the compensation, benefits, and basic efforts at inclusion were notably lower, with TVCs prevented from accessing the internal jobs board. Lax disclosure requirements in the US do not allow us to report just how widely this core/periphery employment model has spread, but the economic benefits are clear. According to the New York Times: “OnContracting estimates that a technology company can save $100,000 a year on average per American job by using a contractor instead of a full-time employee.”
The same technologies enabled the astounding growth of geographically dispersed distribution channels such as Amazon at the expense of local retailers. At the time we were writing, Amazon was a fledgling endeavor and not the globe-straddling behemoth of today – at the start of 2005, the company reported just 9,000 full-time and part-time employees. It has since grown to become a universal distribution method for physical products, enabling companies like the maker of the Instant Pot to contract out all aspects of production, marketing, sales, and delivery. Today, Amazon has over 1.5 million employees and countless contractors, making it the world’s second-largest company (behind Walmart). The pandemic substantially boosted delivery-based retail and encouraged the proliferation of online-first enterprises. Meanwhile, Main Street stores and mall anchors such as Sears, JC Penney, Toys R Us, and dozens of others slipped into bankruptcy or liquidation. Retail has become increasingly placeless, too.
Smartphones and other mobile technologies changed finance, from touch-free payments and Venmo to stock trading apps like Robin Hood. Regulatory changes enabled businesses to raise capital online without going to a bank or a CDFI – again, challenging the locavore model of the community bank. Lastly, in the capital markets, we have seen the rise to dominance of giant index funds such as BlackRock and Vanguard, while campaigns by activist hedge funds bent on enforcing shareholder value have multiplied.
We have arrived at a place where enterprises can snap together the parts needed to do business without making permanent commitments to any particular community or set of employees. Traditional notions of stakeholders appear poorly suited to the contemporary business enterprise. What’s a leader to do?
“In 2020, an Irish Microsoft subsidiary with no employees reported profits equal to three-quarters of Ireland’s GDP.”
Corporate responsibility in a sharecropper economy
It may be even worse than we think. The pandemic may turn out to have been a major turning point in the organization of the American economy and, with it, the meaning of corporate responsibility.
Lockdowns and work-from-home/school-from-home mandates meant that vast swaths of the population connected with the outside world primarily through platforms like Google, Amazon, and Facebook using tools created by Apple and Microsoft (GAFAM). Big Tech’s inescapability was reflected in their stock market valuations, as GAFAM made up more than one-quarter of the value of the entire S&P500. (The S&P500 makes up 80% of the value of the US stock market, which in turn makes up 60% of the world’s stock market value). Big Tech ruled everything around us, following its own peculiar codes, and often controlled by billionaire founders with absolute voting control over the board.
Far less visible was a dramatic surge in new business creation that started during the first year of the pandemic. The rate of startups for “real” businesses that actually employed people had been in decline since the late 1970s. Yet the US Treasury reported 19 million new business applications since the end of 2020; five million were for new employers. The Biden Administration oversaw an unprecedented increase in small businesses. The US has spawned a vast new lumpen bourgeoisie.
But many of these startups were a different breed: tiny tech-enabled enterprises that looked more like Fisker than General Motors. Their employment rolls were modest, and they commonly contracted out large parts of their work (often to other tiny startups). Crucially, their ability to operate frequently relied heavily on Big Tech. They might use Microsoft software tools and cloud services and Apple hardware, advertise on Google and Facebook, and distribute their goods on Amazon or the Apple or Android (Google) app stores.
The operations of this new sharecropper economy and, increasingly, our society hinges on Big Tech firms, monopolies that control indispensable information-based products and services. Big Tech is global, yet without any particular “home” to speak of, having fully mastered the dark arts of nationality arbitrage. (In 2020, an Irish Microsoft subsidiary with no employees reported profits equal to three-quarters of Ireland’s GDP.) They exemplify the responsibility paradox, with no fixed community or even nationality. Milton Friedman argued that the social responsibility of business was “to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom”. But which society is our guiding light today? And whose laws and ethics – the US, Ireland, the EU, China, or perhaps E-Estonia?
The same goes for the millions of tiny enterprises Big Tech has enabled – app developers, small retailers, micro-professional services firms, and so on. Like the giant GAFAMs of this world, these small enterprises are relatively placeless and ephemeral. Few people are demanding more accountability from them, and many may operate from suburban homes, just nodes in a network of contractors.
Neither of those business models fits the idea of corporate responsibility that evolved in the 20th century. But both are certain to be challenged by the return to economic nationalism embodied in recent elections around the world. It seems the boundaries among nations may be hardening around us. It may be time for another revolution in thinking about corporate responsibility.
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