Protocol | Workplace

Annual shareholder meetings: A new battlefront for tech workers

"There's no such thing as a silver bullet when it comes to corporate change."

Hands holding up protest signs

Investors in tech giants face an especially steep climb due to the massive amount of control that founders retain.

Illustration: Getty Images

For two years running, Alphabet investors have had a chance to hear directly from Google engineers past and present at the company's annual shareholder meeting. In 2020, it was Jack Poulson, an engineer who left the company in 2018 after finding out Google was considering building a search engine for China. This year, it was Andrew Gainer-Dewar, a Google Ads engineer and member of the Alphabet Workers Union, who talked about how Alphabet has retaliated against whistleblowers inside the company.

Both years, Poulson and Gainer-Dewar presented a shareholder proposal brought by Trillium Asset Management, asking for the same thing: a third-party review of Alphabet's whistleblower policies.

Both years, their proposals got voted down.

Proponents of the measure argue that even though it didn't pass, that doesn't mean the effort itself was a failure. "At its heart, this work is about persistence and long-term change," said Jonas Kron, Trillium's chief advocacy officer.

Activist investors and equity-holding employees have used shareholder proposals for decades to publicly urge companies to change their ways. Such proposals have been used effectively to push companies on sustainability goals and change corporate governance structures. But recently, as tech workers have become more vocal about their experiences working for tech giants, a growing number of these proposals have come to directly reflect worker concerns about their employers.

This year alone, in addition to the whistleblower proposal, both Alphabet and Facebook faced proposals that would require them to add someone with civil and human rights experience to their boards. Amazon held votes on a battery of proposals, from a call for a racial equity audit to a proposal that would make hourly workers board director candidates to one that would require more detailed reporting on gender and racial pay disparities. (Disclosure: My husband works for Amazon).

All the proposals failed, but not before racking up hundreds of millions of votes between them. The whistleblower proposal, which was up for a vote two years in a row, roughly doubled in support year-over-year.

To Michael Connor, executive director of Open MIC, a nonprofit that works with sustainable funds to organize shareholder proposals, that's a sign that things are trending in the right direction. "Over time even if shareholder proposals are voted down, it doesn't mean directors don't have a fiduciary duty to worry about those issues and be concerned about them," Connor said.

Connor pointed to several recent efforts where shareholders were able to secure a majority vote after years of trying. Most recently, an activist hedge fund manager pushing for climate-friendly reform was able to replace several of ExxonMobil's board members.

"ExxonMobil was considered bulletproof," Connor said. "That's changed."

But investors in tech giants including Facebook and Alphabet face an especially steep climb due to the massive amount of control that their founders retain. Both companies have dual class share structures that give people like Mark Zuckerberg, Sergey Brin and Larry Page 10 times as many votes per share as other investors.

The vote counts from the most recent annual meeting show just how much power tech founders have to swat away proposals they don't like. A recent vote to get rid of dual class shares at Facebook received just under 28% of votes overall. But take Zuckerberg's votes out, and the proposal won resoundingly with roughly 89% of the vote, according to Connor. The stats were similar at Alphabet, where another proposal focused on equal shares received more than 90% of the vote without including Alphabet's directors and officers, and just 31% with them.

"Alphabet's not a company where any shareholder coalition that doesn't include Larry and Sergey can pass something by vote," Gainer-Dewar said, noting that he was not naive to this fact before giving his presentation on the whistleblower proposal. "Despite being a trillion-dollar company, it's controlled by two people."

He still sees the shareholder proposal process as an important arrow in his quiver. "The members of the board, the shareholders, they're people with power at Alphabet, even if they don't have 50% of the votes," Gainer-Dewar said. "It's an opportunity for us to speak to the tech community and the media community on the big stage."

Just because proposals don't pass doesn't mean they can't have an impact, Kron said. It wasn't long ago that Trillium was pushing Google through the shareholder proposal process to release a sustainability report. The proposal failed, but within a year, Kron said, Google announced it would begin reporting on sustainability benchmarks. Now, Google has committed to run on carbon-free energy before 2030.

Kron acknowledged that changes to public opinion around climate change likely had a lot to do with that evolution, but he believes investors had an important role to play too. "There's no such thing as a silver bullet when it comes to corporate change," he said. "There's only silver bank-shots."

Ifeoma Ozoma, a former Pinterest employee who spoke out about discrimination and retaliation she experienced at the company last year, also views shareholder activism as one of many important pressure points for tech workers seeking change. Ozoma has been pushing for laws in places like California and Ireland that would allow employees to break their non-disclosure agreements in instances when they've experienced illegal harassment or discrimination. The Silenced No More Act, which Ozoma co-wrote, is currently moving through the California State Assembly.

Ozoma said she's also planning to push forward a shareholder proposal that mirrors the bill — though she's not saying yet which company she's targeting. She's hoping that coupling the proposal with looming regulation in California could convince companies to extend these whistleblower protections more broadly, even beyond the places where it's mandated.

"You need to come at it from every single angle," Ozoma said, noting that getting any specific resolution to a vote is beside the point. Her primary aim is to get the issue in front of top tech executives. She's currently working with Open Mic as well as Whistle Stop Capital and an Australian organization called Minderoo Foundation on a game plan.

"How many people get an opportunity to sit down with Sheryl [Sandberg] or whoever else? Those folks are having conversations with major asset managers and investors," Ozoma said. "[This] is a mechanism to have the conversation with the company that you don't have when you're just asking them to do something."

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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