By Mike O'Sullivan

About the author: Mike O'Sullivan is the author of The Levelling.

When I completed my postgraduate studies in the late 1990s, I shelved my doctoral finance thesis in a dusty library. My research had found that corporate governance mechanisms, such as board of directors and active shareholders, tend to complement and balance each other to drive a company's performance. Strong corporate governance helps sustain strong stock performance.

I thought my findings, like many academic papers, would have limited lasting relevance in the fast-evolving world of business. But as the tide went out on tech stocks, the dot-com bubble bust soon after, and a series of major corporate governance scandals surfaced -- Enron being the most prominent -- my research felt pertinent again.

Decades last, my research feels worth revisiting again. I've started to think of the relationship between corporate governance and stock performance as the tech industry and equities enter a new era of growth and change.

Tech companies are growing on steroids. Samsung recently became a $1 trillion firm. Nvidia is now worth $5 trillion. Intel, having languished for decades, has recovered toward valuation levels last seen at the height of the dot-com stocks boom in 2000. A range of valuation measures for the U.S. stock market and indicators of retail participation in the market are at 2000-era nosebleed levels.

The most novel development is the emergence of megacap tech companies like Anthropic and SpaceX, both of which have raised capital at valuations close to $1 trillion. Trotting behind them are 1,680 unicorns. According to the PitchBook Unicorn Tracker, about 40% of the total value of those unicorns comes from AI firms, which suggests that these companies are very young indeed. In the history of economics and business, this is an entirely new phenomenon, one that will bring new challenges for corporate governance.

The problem is that the governance structures in these companies are adolescent at best, ill-equipped to handle their rapid rate of revenue growth, their evolving business models, and their swiftly changing capital structures. I fear these factors will coalesce to make an eventual market downturn even more painful than it would be otherwise.

Capital structures are quite different today than they were during the dot-com era. Private capital is a much bigger source of financing, and many unicorns count clusters of venture firms, families, and founders on their capital tables. In many cases, these investors hold voting rights at the expense of later investors.

Another new development in capital structure is that young, fast-growing firms count governments, former officials, and those in the political sphere as shareholders. France's Mistral, a three year old AI firm heavily promoted and financially backed by the Macron administration, is a case in point.

Some of the largest technology firms have also become active venture investors themselves. The line item "other income", referring to gains in equity investments in other companies, popped up again and again in recent earnings reports. Microsoft, for instance, has reported making money from its investment into OpenAI and Mistral, showing how there now exists a financial link connecting the outcomes of various tech firms.

At the same time, these companies' revenue growth rates are picking up speed. The advent of social media and, more recently, AI-driven commerce, has allowed companies to grow much more quickly than in the past. Large, established firms like Meta Platforms took decades to expand but are now being caught by young companies with relatively small workforces. The effect of that is disruptive -- largely, though not always, positively so.

The arrival of new and fast-growing private companies comes at a time when corporate governance in the U.S. is at a low ebb. The alignment of executive pay with outcomes, the activeness of boards, and the oversight and reporting standards set by institutions like the Securities and Exchange Commission and the Department of Justice are waning. Incorporation in regulatory havens, the prohibition of shareholder class actions, and heavy share-based compensation have become the norm.

These companies bring their own governance foibles. Many are led by individuals with strong personalities -- a necessary quality in start-ups, many would argue -- but an undesirable one, from a governance point of view, for firms launching IPOs at historic valuations. Many have incentive structures heavily skewed toward these overwhelmingly dominant founders and executives. That is especially true for AI companies that sell technology that demands high standards and ethical guardrails.

Above all, many of these firms have as yet little to show in terms of profits. In the context of stratospheric valuations, the risk of a bubble forming and then bursting is elevated. Once the AI capital expenditure boom slows, the tide will go out. Many will lose their capital and will wonder if they should have paid more attention to corporate governance. If they do, I have an old study to share with them.

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June 05, 2026 13:15 ET (17:15 GMT)

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