From the bankruptcy of FTX and the downfall of cryptocurrency “rock star” Sam Bankman-Fried to the chaos of Twitter, it hasn’t been a good week for the capitalist genius. Elon Musk’s sudden, and in some cases already overturned, decisions since acquiring the social media company have so far backed up his claim that his tenure is “not boring.” All too often repeated corporate reveals the kind of governance issues he has. of shareholders.
“Without a doubt, Sam Bankman-Fried is a genius,” Jeffrey Sonnenfeld, a Yale School of Business mentor, said Thursday in an interview with CNBC’s “Taking Stock.” “But the hard part is someone has to be able to put the brakes on them and ask them questions. I don’t have any,” said Sonnenfeld.
Few would doubt the genius of Elon Musk or Mark Zuckerberg in that regard, but few would put them in the same class as the many companies that failed spectacularly.
“It’s not strange to talk about Theranos or WeWork or Groupon or MySpace or WebMD or Naptster. So many companies that have fallen off a cliff without proper governance don’t understand how they make money. A genius at its finest?” Sonnenfeld said.
In the case of Bankman-Fried, who resigned as CEO of FTX, which filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should have asked the tough questions.
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But boards often can’t manage genius, says Sonnenfeld. Zuckerberg is another example.when meta, formerly Facebook, announced last year that it would shift its focus to the Metaverse, where members of its board of directors are essentially powerless, Sonnenfeld said. Fired and announced a hiring freeze. This comes as Zuckerberg faces declining revenues and increased investment in the Metaverse, which he said his decade may not pay off.
Tesla Musk’s acquisition of Twitter has not been immune to the effects, with shares plummeting on Thursday after Musk told Twitter employees it was selling Tesla shares to “save” the social network. One Wall Street analyst has decided Twitter is now a business risk for Tesla and has removed the company’s stock from his Best Picks list.
Musk (though not the founders of Tesla) and Zuckerberg oversaw the creation of the $2 trillion company, but the macroeconomic climate has challenged sector-specific risks, resetting high-growth company valuations, and leadership decisions. .
Market research shows that founders can become a financial risk to enterprise value over time. A Harvard Business Review study of the financial performance of more than 2,000 publicly traded companies found that founder-led companies outperformed those with non-founder leaders early on. However, three years after the company was founded, there is virtually no difference. IPO. After this period, the study found that founders and CEOs “are really starting to devalue their companies.”
Key players in Elon Musk’s Twitter deal, including Fidelity Investments, Brookfield Asset Management and Twitter’s former CEO and co-founder Jack Dorsey, will not be on the company’s board of directors and will speak out through the deal. Neither had any rights, Sonnenfeld said. No oversight. Musk currently splits his time between his six companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink, and The Boring Company.
A company led by a lone genius needs, first and foremost, strong governance. To make these businesses work with less risk of costly failures, Sonnenfeld says it requires built-in checks and balances and a board of directors with on-the-ground expertise and the ability to oversee the mission’s creep. stated that it is important to have
Tesla and Meta Governance scores within ESG rankings have long reflected this risk.
That doesn’t mean the market doesn’t need geniuses.
“Certainly, Elon Musk is better in this world than we are with Mark Zuckerberg,” Sonnenfeld said. “But they cannot be alone.”
Through recent issues, these Underfire leaders have been critical of themselves.
FTX’s Sam Bankman-Fried tweeted “sorry” on Thursday morning, admitting he “failed” and “should have done better.”
In a statement, Zuckerberg, in an equal part apology and unintentional restatement of governance issues, said of the massive layoffs at Meta: Determining our direction, and how we’re going to do it, including things like this, and this was ultimately my mission.”
Musk murmured“Be aware that Twitter will do a lot of stupid things in the coming months.”
But whether it’s an apology or an admission from the genius that they can be stupid at times, Sonnenfeld says these leaders would be better off letting others take the blame.
“They must be managed, they must be guided, they must have a board of directors who can get the best of themselves and not develop this sense of imperial invincibility.” He said.
