From the FTX bankruptcy and demise of crypto “rock star” Sam Bankman-Fried to the chaos on Twitter, it has not been a good week for the geniuses of capitalism. Elon Musk’s abrupt and in some cases overturned decisions since acquiring the social media company bolster his claim that his tenure so far has “not been dull” but also expose the kinds of corporate governance issues too often reiterated in the past. disadvantage of shareholders.
“Sam Bankman-Fried is without a doubt a genius,” Yale School of Management leadership guru Jeffrey Sonnenfeld said in an interview with TBEN’s “Fast Money” on Thursday. “But what’s difficult is that someone has to be able to put them on the brakes and ask them questions. But when they develop one of these emperor-for-life models… then you really don’t have any responsibility,” he said. Sonnenfeld.
Few would question the genius of Elon Musk, or Mark Zuckerberg, for that matter, but few would put them in the same league as many companies that have failed spectacularly, though Sonnenfeld says they share the link that they are allowed to operate without adequate corporate oversight.
“It’s not crazy to talk about Theranos, or WeWork, Groupon, MySpace, WebMD or Naptster – so many companies falling off the cliff because they didn’t have good governance, they didn’t figure it out, how do you get the best of a genius ?” said Sonnenfeld.
In the case of Bankman-Fried, who resigned his position as CEO at FTX when the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should have asked tough questions.
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But boards are often incapable of managing genius, Sonnenfeld said. Zuckerberg is another example. When meta, formerly Facebook, announced last year that it would shift its focus to the metaverse, Sonnenfeld said its board members were essentially powerless. Meta fired 11,000 of its employees this week and announced a hiring freeze as it faced declining revenues and increased spending on a metaverse bet that Zuckerberg said might not pay off for a decade.
Tesla stocks have not been immune to Musk’s Twitter takeover, with the stock plummeting this week after Musk told Twitter employees on Thursday that he sold Tesla stock to “save” the social network. A Wall Street analyst decided that Twitter is now a business risk for Tesla and removed the stock from a top pick list.
Musk (though not the founder of Tesla) and Zuckerberg oversaw the creation of two trillion dollar companies, although both have now lost market cap status in stock declines caused by a variety of factors — from macroeconomic conditions to sector-specific risks, a market valuation reset for high-growth companies. companies, as well as leadership decisions.
Market research shows that founders can pose a financial risk to company value over time. According to a study by the Harvard Business Review that examined the financial performance of more than 2,000 public companies, it was found that companies that have no founders at the start of the year outperform those with non-founders. flotation. After this time, the study found that founder CEOs “actually started detracting from company value.”
Major players in Elon Musk’s Twitter deal, including Fidelity Investments, Brookfield Asset Management and former Twitter CEO and co-founder Jack Dorsey, did not sit on the company’s board and had no vote during the transaction, Sonnenfeld said. who gave the deal. no overview. Musk now divides his time among six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.
First and foremost, companies run by lone geniuses need strong governance. Sonnenfeld says having built-in checks and balances and a board of directors with field expertise and the ability to watch out for mission creep is key to keeping these companies running with less risk of costly blunders.
Tesla and Meta governance scores within ESG rankings have long reflected this risk.
That doesn’t mean the market doesn’t need geniuses.
“Sure, we’re better off with Elon Musk in this world, like we’re better off with Mark Zuckerberg,” Sonnenfeld said. “But they can’t be alone.”
Recent troubles have made these under attack leaders critical of themselves.
FTX’s Sam Bankman-Fried tweeted Thursday morning that he was “sorry”, admitting he was “fixed” and “should have done better”.
Zuckerberg said of the massive layoffs at Meta in a statement saying equal parts apology and inadvertent reformulation of the governance issue: “I take full responsibility for this decision. I am the founder and CEO, I am responsible for the health of our company, for our direction and to decide how we run that, including things like this, and this was my call in the end.”
Musk tweeted“Keep in mind that Twitter will be doing a lot of stupid things in the coming months.”
But whether it’s an apology or a confession from a genius that she too can be stupid at times, Sonnenfeld says these leaders would be better off letting others do the critique — much sooner and much more often.
“They have to be managed, they have to be led and they have to have a board that can help them get the best out of themselves and not let them develop this imperial sense of invincibility,” he said.