The Code

by Margaret O'Mara

  The practice that made eminent sense within the high-tech Galapagos became problematic when these firms pushed to center stage in Wall Street’s 1990s bull market. Once public, companies had to start filing earnings reports with an obscure but powerful entity called the Financial Accounting Standards Board, or FASB. Essentially, they maintained two sets of books: one for the IRS, and one for FASB. And where a firm’s incentive with the tax man was to express as little profit and as much loss as possible, with FASB you wanted to arrive at high-earnings numbers that would encourage Wall Street to buy. While regular payroll had to be charged against earnings, there was no rule that required tech companies to count stock options the same way. If you counted these fat options packages as compensation—which, in fact, was their main purpose—then the profit-and-loss statements looked considerably less rosy, particularly as stock prices climbed.

  The Valley’s ability to sustain such unusual accounting practices was the result of an important political victory it had achieved in the early years of the dot-com boom, another sign of the growing clout that its Internet-era companies had gained in D.C. In the summer of 1993, just as the Mosaic browser was bursting onto the scene, FASB regulators had proposed doing away with the stock-option exemption. The corporate outcry was immediate, and sustained, spurring the Valley into a fresh flurry of political activism. Things came to a full boil by the spring of 1994, as software engineers packed the San Jose Convention Center to rally against the measure. From the podium, tech executives were eager to frame the whole matter as yet another David-vs.-Goliath battle between earnest and scrappy Silicon Valley and the backward-looking bureaucrats back East. “FASB is a bunch of accountants who sit in a vacuum in Connecticut,” T. J. Rodgers thundered to the crowd. “The accounting in this instance has a face,” exhorted 3Com’s Katherine Wells. “This is not about debits, it’s about dreams.”32

  The whole business was a giant headache for Clinton’s newly appointed Securities and Exchange Commission Chair, Arthur Levitt. A seasoned Wall Streeter of centrist politics and an impatience with corporate bloviation, Levitt’s sympathies lay with the individual investor—and in providing such investors with the most full and transparent accounting possible of company financials. Stock-option accounting was a shell game, and he didn’t like it one bit.

  Yet once the tech-sector outcry reached such a volume that lawmakers of both parties on Capitol Hill began making moves toward legislation that would keep the options free, Levitt decided that resistance was futile. He encouraged FASB to drop the proposal, which it did. Only one thing changed (and it didn’t even go into effect until 1997): companies had to add a footnote to their filings that showed the earnings number with stock options charged against it. The difference was dramatic—using the alternative calculation, Netscape’s earnings dropped by nearly 300 percent—but as many in the Valley knew, few people read the fine print. Levitt later regretted having given in. “It was probably the single biggest mistake I made in my years at the SEC.”33

  THE CHARMED CIRCLE

  The Valley folk were right about one thing: those stock options could change lives. Trish Millines could hardly believe it when her Microsoft stock portfolio hit $1 million. She’d first started at Microsoft as a contractor in 1988, three years after arriving in Seattle and two after Microsoft had gone public. She came on as a full-time employee in 1990 and stayed on through six years and five stock splits. Over the time she’d been there, the massive revenues generated by MS-DOS had been dwarfed by the stupendous profits driven by the Microsoft Windows operating system and its cheerful, icon-filled software applications like Word and Excel. Millines—soon to go by her married name, Millines Dziko—finally had enough money to do something different.

  Through her two decades working in a massively expanding and staggeringly wealthy industry, Millines Dziko had seen very little change in the makeup of who worked there. Nearly all her colleagues, and especially her bosses, were white and male; when she and another black manager at Microsoft once found themselves running a meeting together, it was as memorable as a unicorn sighting. At one point, realizing that only forty African Americans worked at the entire company, she co-founded a group called Blacks at Microsoft to provide some of the same kind of professional support that so many other engineers took for granted.

  She moved from a technical role to become a diversity supervisor for the company, working to recruit and retain more women and minorities. But while she appreciated Microsoft’s recognition of the problem, she realized that its source wasn’t just in how hiring happened. It was a matter of who was in the hiring pool in the first place. Tech had a pipeline problem, the product of decades of exclusively male engineering programs and often-blatant sexism and racism in the workplace, exacerbated by the popularization of a tech culture whose freaky and geeky face was almost always white and male. Many in the industry got defensive when someone like her pointed out these dismal inequities. Tech was a meritocracy! You got ahead because you were a smart engineer! Plus, look at all the people who were first- or second-generation Indian and Chinese—didn’t they count toward “diversity”? Even a Microsoft millionaire like Millines Dziko couldn’t seem to make a dent in the problem.

  If things were bad at Microsoft, they seemed even worse in the Internet-era Valley. The early online world of BBSs and cyberpunks had been mostly white guys, for sure, but there still had been plenty of women there in the beginning. Just as in the early days of micros and homebrewed motherboards, lots of people on the early Internet were self-trained programmers and participants who’d come online from a diverse range of backgrounds. It didn’t seem far-fetched to imagine this might continue as the Internet commercialized. If the business of the Valley was no longer about things made by electrical engineers and software hackers, but about ideas and content that floated atop software platforms, shouldn’t that open up the tech world to people who hadn’t been part of it before?

  Nope. Instead, as the Internet wealth machine accelerated, the old patterns intensified. The tech might be new, but the VCs and lawyers and marketers and senior operators weren’t—and their attitudes about hiring were the same as ever. They encouraged employee referrals; they recruited at the very top programs. Sun filled 60 percent of its jobs through referral; Netscape hung a sign in its headquarters asking, “Who is the best person you’ve ever worked with? How can we hire him/her?”34

  As the boom crested in the spring of 1998, the San Francisco Chronicle investigated the state of diversity in Silicon Valley and came back with some sorry findings. Their survey of thirty-three firms found a workforce that was 7 percent Latino and 4 percent black (at the time, the Latino population of the Bay Area was 14 percent and blacks were 8 percent). True, there was ample opportunity for immigrants, especially in engineering. Close to one in four employees were of Asian descent. The vast majority of them, however, were male. Tech bosses were adamant that this wasn’t discrimination: “It wouldn’t matter if you were green with white stripes, if you could code you will get a top job,” said one HR director. At Cypress Semiconductor, where the employee base was 3 percent black and 6 percent Latino, CEO T. J. Rodgers declared, “We hire the best people for the job.”

  The Valley’s racial minorities responded accordingly. Latinos Anglicized their last names. Black entrepreneurs spent their off hours bonding with white VCs on the golf course. South Asian immigrants, well-represented in the tech ranks but less so in the top jobs, banded together in entrepreneurial networks and hired one another en masse.

  The charmed circle became so homogeneous by the late 1990s that Valley firms attracted the attention of federal officials for their failures to properly ensure diversity. Anyone with a federal contract had to adhere to affirmative action guidelines, and tech was missing the mark. “Being the fastest-growing software company ever, we shot past the mark that the government sets down for putting an affirmative action plan in place,” countered Bob Sundstrom, whom Netscape belated
ly hired as its manager of diversity programs after it was rapped on the knuckles for its failures. Apple had to pay over $400,000 in back pay to fifteen black workers who were rejected for jobs. Oracle was fined for pay inequity toward female and minority employees.35

  Trish Millines Dziko watched it all with resigned frustration. Software was transforming the world, and it was important to have a diverse set of minds shaping that software. She had weathered life in the extreme minority at Microsoft, an isolation made sharper by being in the overwhelmingly white Pacific Northwest. Over time, Blacks at Microsoft had morphed to being much more than just a place to compare notes on where to get a haircut, sponsoring events that brought minority high schoolers over from Seattle’s Central District for a day at Microsoft. The experience had sparked new ideas about how the tech industry might change. “All we’re doing,” Millines Dziko mused, “is creating a bunch of consumers, and until kids begin creating technologies, the gap will always widen.” The answer lay at the beginning—in teaching minorities and girls how to do it themselves.36

  In 1996, many other newly minted Microsoft millionaires were leaving their jobs, and many were starting their own philanthropies. Bill Gates eventually would do the same thing, on a much, much larger scale. Millines Dziko’s bank account was small stuff in this high-flying crowd, but she had enough to do something that might start moving the needle. That something was the Technology Access Foundation, an academy where low-income minority kids could go after school and learn how to design and program computers. If the big companies weren’t going to fix their pipeline problem, then she’d try to fix it herself.

  CHAPTER 21

  Magna Carta

  The central event of the 20th century is the overthrow of matter.” So began Cyberspace and the American Dream: A Magna Carta for the Knowledge Age, a declaration of cybernetic independence, rocket-launched in late summer 1994 out of a Washington think tank called the Progress & Freedom Foundation, or PFF. The outfit might have been obscure, but the essay’s four authors were anything but.

  Taking the lead was Esther Dyson, whose annual PC Forum and monthly newsletter Release 1.0 had become the way the most powerful people in tech learned about the future. Then came “Doctor SDI,” George (Jay) Keyworth, who as Reagan’s science advisor had been one of the High Frontier’s most bullish defenders. Another Reagan-era boldface name on the roster was former presidential speechwriter George Gilder, evangelist of the supply-side gospel and a pop-science gadfly whose musings about the dangers of feminism once prompted NOW to dub him “male chauvinist of the year.” Now Gilder had turned techno-futurist in the mold of Alvin Toffler, the essay’s fourth author, who supplied grandiose textural flourishes. Not a full-time Silicon Valley resident in the bunch, but all people whose ideas had left a deep imprint on the Valley’s state of mind.1

  Esther Dyson hadn’t expected to be the Thomas Jefferson of this particular enterprise, but given her talent to end up at the center of everything, it wasn’t surprising. The daughter of famed theoretical physicist Freeman Dyson, she had grown up among the giants of early digital computing at Princeton’s Institute for Advanced Study and had honed her understanding of the tech ecosystem ever since arriving at Forbes magazine as a fact-checker in 1974. As a reporter there, she sniffed out one of the very first stories on the rising electronic might of Japan. Before too long she had moved into investment banking at Oppenheimer & Co., then joined Ben Rosen at Rosen Research.

  By 1994, eleven years after she had joined and eventually taken over Rosen’s newsletter and conference business when he became a venture capitalist, Dyson had become the most influential member of the newest generation of Valley storytellers. She had gone global, expanding her empire into Russia and Eastern Europe after the Iron Curtain fell. Esther Dyson combined Ben Rosen’s keen industry antennae with Regis McKenna’s ability to create media buzz and throw a great dinner party. On top, she added her own distinctive techno-futurist gloss—Tofflerism with a stock-picker’s sensibility. It cost over $600 a year to subscribe to Release 1.0, and 1,500 of the tech industry’s most powerful read its every elliptical word.2

  Dyson leaned libertarian in her politics. She had never voted. Her work in the former Soviet bloc gave her firsthand knowledge of the damage wrought by authoritarian states. Yet she also had a nuanced understanding of the codependence of states and markets, and of the necessity of a productive working relationship between D.C. and tech. “Whether you like it or not,” she reminded her audience at the 1993 PC Forum, “there are people in Washington who have more control over your future than Microsoft does.” When the Clinton White House asked Dyson to join the NII advisory committee, she readily agreed. In 1995, she became the chair of the EFF and its well-oiled lobbying machine. The Internet economy was only starting to bubble (Amazon was one month old at the time of the essay’s release), but government regulation would be critical to its growth.3

  Although later critics called it a quintessential example of wide-eyed techno-libertarianism, the vision of Cyberspace and the American Dream was one of disruption rather than revolutionary overthrow. Yes, a Third Wave society needed and deserved a “vastly smaller” state. “But smaller government does not imply weak government, nor does arguing for smaller government require being ‘against’ government for narrowly ideological reasons.” Squint, and you could mistake some of its passages for talking points from the Clinton-Gore National Performance Review, also known as “Reinventing Government,” which was then attempting to reorganize an ossified federal bureaucracy for the digital age.

  But the national politician whose philosophy it more closely resembled was someone closely affiliated with the PFF, a party compatriot of Keyworth and Gilder, and someone who had spent years soaking in the futurist gospel of Alvin Toffler. That politician was Newt Gingrich.4

  THE BOMB THROWER

  In his fifteen years in Congress, the Georgia congressman and House Minority Whip had become the progenitor and master practitioner of a fire-breathing brand of sharply partisan, made-for-cable-TV intellectualism that decimated his rivals and horrified prim defenders of Congressional decorum. It also was terrifically effective politics.

  In a staid Washington landscape, Gingrich stood out for his delight in sweeping historical analogies as well as an unapologetic futurism. He’d been a friend of Alvin and Heidi Toffler since the early 1970s, when as an unknown assistant history professor he had flown halfway across the country to hear Toffler give a speech. After he got to Congress, he invited the Tofflers to Capitol Hill to speak to the Conservative Opportunity Society, a group he’d helped to organize that was something of a GOP analogue to the tech-centric Atari Democrats. While the Tofflers didn’t share Gingrich’s conservatism on social issues—their take on sexual freedom and unconventional family structures always raised eyebrows on the right—they shared with him a conviction that, in Toffler’s words, “a weakening of Washington and a dispersal of power downward is where we must go.”5

  By the summer of 1994, the Clinton Administration found itself careening from one crisis to another as the sunny optimism of its campaign promises met the drab reality of budget caps and legislative horse-trading. The GOP had adopted the bomb-throwing tactics of Newt Gingrich to successfully turn health care into a symbol of dangerous government overreach. Now, Gingrich was busily working with his lieutenants to formulate a campaign platform for the House midterm elections called “The Contract with America,” a declaration of conservative priorities that the Republicans vowed to pursue if they won control that November.

  All this was on Gingrich’s mind as he showed up late in August to the small Atlanta conference thrown by the PFF to accompany the release of Cyberspace and the American Dream. The think tank was less than a year old by that point, but its alignment with conservatives like Gingrich gave “the only market-oriented institution focused on the digital revolution” special clout. Jay Keyworth was its president, and Republicans filled its ranks. (F
ounded at a moment when the EFF enjoyed high-level Democratic cosseting and generous corporate backing, the PFF’s acronym was no accident.)

  Dyson met Gingrich with guarded curiosity. “Everyone I knew seemed to think he was the antichrist,” she recalled. Yet the Georgia congressman knew more about the Internet than she expected, and he was clued in to the fact that, as the manifesto put it, the rise of new information technology “spells the death of the central institutional paradigm of modern life, the bureaucratic organization.” The Democrats in the White House understood the technology, too, but they didn’t seem able to escape a Second Wave world of Information Superhighways and government micromanagement. With little fealty to governmental tradition, Gingrich sounded ready to do something really different, and something a little closer to the revolution that Silicon Valley was hoping for. “I left not convinced, but intrigued, and sure that he was hardly the one-dimensional figure my friends had supposed,” Dyson later wrote.6

  Five months later, after a Republican tsunami overtook Washington and Gingrich became the third-most-powerful politician in America, the new House Speaker devoted his first full day in office to all things tech. He unveiled Congress’ new website, a service called Thomas, that put every bill, hearing, and report of legislation online. “This is going to lead to a dramatic shift in thinking and talking about ideas rather than personalities,” he boldly predicted. “It’s going to make for a dramatically healthier dialogue among Americans.” Gingrich then moved from podium to committee room, to testify in favor of his new proposal to give tax credits so that every poor person in America could buy a laptop. The price tag for such a measure was potentially staggering, but Gingrich wanted to make it clear: he had arrived to carry the nation into the Internet Age.7