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The leadership hole at Facebook

Rick Newman
·Senior Columnist

Facebook CEO Mark Zuckerberg’s favorite slogan used to be “move fast and break things.” As controversy engulfs his firm, however, it now seems Facebook (FB) itself is broken—with Zuckerberg and his chief operating officer Sheryl Sandberg both reluctant to get their hands dirty and aggressively address the problems.

“Mark and Sheryl — or whoever is advising them— seem to be missing that the CEO’s job is to help shape the image of the organization in ways that are in its best interest,” says Stanford professor Robert Sutton, author of “Scaling up Excellence” and several other books on leadership. “What I have seen so far reminds me of what tobacco would do—deflect and obfuscate and blame external forces, and only admit the truth when all other options are exhausted.”

Facebook (FB) has lost a whopping $50 billion in market value, with the shares down about 10%, since the New York Times and Observer of London published a set of exposes regarding the use of Facebook user data by a research firm working for Donald Trump’s presidential campaign in 2016. That firm, Cambridge Analytica, may have gathered unauthorized data on as many as 50 million Facebook users in the United States, and exploited it to help Trump win.

Here’s Facebook’s five-day stock chart:

Source: Yahoo Finance
Source: Yahoo Finance

Allowing access to that data may have violated a 2011 consent decree between Facebook and the U.S. government, possibly exposing the firm to billions in fines. The Federal Trade Commission is now investigating that. Attorneys general in Massachusetts and Pennsylvania are also probing whether the social-media giant may have broken any laws. And key politicians in the United States and Europe are calling for further probes into the matter, and perhaps new rules and regulations governing what the social-media giant can do.

Zuckerberg was silent for five days following the Cambridge Analytical news, while two subordinates issued a handful of tweets defending the company. On March 21, Zuckerberg finally responded, in his usual way, with a post on his Facebook page explaining what Facebook plans to do next. “We … made mistakes,” he wrote. “There’s more to do, and we need to step up and do it.” The firm will mroe thoroughly investigate past abuses. It will tighten rules for third-party developers that gather data from the platform. And it will introduce new tools allowing users better control of their personal data. “I started Facebook,” Zuckerberg concluded, “and at the end of the day I’m responsible for what happens on our platform.”

Zuckerberg did not use the words “sorry” or “apologize,” or any derivative of such words. Facebook shares fell slightly as his post went live, recovered, and ended a tad lower that where they had been before Zuckerberg spoke up.

A fundamental conflict

Zuckerberg sees his company as a benign force whose mission is to “connect the world.” With 2 billion users—more than one-quarter of the world’s entire population—Facebook has arguably succeeded at that. But some critics see Facebook and Zuckerberg as considerably more sinister. “I think Zuckerberg does not have inside himself a normal facility for empathy,” says Ophir Gottlieb, CEO of Capital Market Laboratories, an investing research firm. “His go-to behavior is to maximize shareholder value. It will hurt Facebook.”

Zuckerberg has adroitly maximized shareholder value, turning his college startup into the 7th most valuable public company in the United States. Even with the recent swoon, Facebook’s stock is up 18% during the last year, and an astonishing 543% during the last 5 years. But Facebook’s business model has an inherent conflict. “The promise to users is to connect them with friends and family, which relies on trust,” says Harvard Business School professor Nancy Koehn, author of“Forged in Crisis.” “But the business model is to sell information about users—sometimes in a surgical way—to advertisers. The conflict is fundamental.”

Zuckerberg has alternated between combativeness and penitence as evidence has mounted of political operations on Facebook that undermine democratic processes in the United States, Europe and elsewhere. Two days after Trump won the presidency in 2016, Zuckerberg said it was “crazy” to think that fake news on Facebook played any role in the outcome of the election. But as new details emerged throughout 2017, Zuckerberg changed his views (at least publicly). Early this year, Zuckerberg acknowledged, “we currently make too many errors enforcing our policies and preventing misuse of our tools. My personal challenge for 2018 is to focus on fixing these important issues.”

Instead of fixes, however, 2018 has brought the largest selloff in Facebook shares since the rocky aftermath of its 2012 public offering, and probably the most severe challenge to its business in the company’s 14-year history. The company is awash in talent, and it certainly has the financial resources to reboot and reassure critics. But much relies on Zuckerberg himself, since he controls more than half of the voting shares in the company, making Facebook as much of an autocracy as any public company can be. “This has a lot to do with Mark Zuckerberg getting right with himself,” says Koehn.

“I haven’t given up on Facebook or its people,” says Sutton of Stanford. “I hope and want to believe they will get out there, tell the truth, and make changes that show they really do care about users first.” But repairing the damage could take awhile. Meanwhile, Sutton suggests an experiment: Tell students in CS 106A, Stanford’s popular Intro to Computer Science course, they have comparable job offers from both Facebook and Google, and see which they choose. “A year ago,” says Sutton, “I think it would be tough choice for most students. Right now, I suspect it would be lopsided in favor of Google.”

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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