From Elon Musk to Sam Bankman-Fried, a bad week for market geniuses

Are founders good or bad for business?

from FTX is bankrupt and the downfall of crypto “rock star” Sam Bankman-Goreng ka Chaos on Twitter, it has not been a good week for the geniuses of capitalism. Elon Musk suddenly and in some cases already capsize the decision since taking over the social media company backs up his contention that so far his tenure is “not boring,” but also exposes the type of corporate governance problems that are too often repeated to the detriment of shareholders.

“Without a doubt, Sam Bankman-Fried is a genius,” Yale School of Management leadership professor Jeffrey Sonnenfeld said in an interview with CNBC’s “Taking Stocks” on Thursday. “But the difficult thing is that anyone should be able to ask them and ask questions. But when they develop one of these imperial-life models … then you really have no responsibility,” said Sonnenfeld.

Few would doubt the genius of Elon Musk, or Mark Zuckerberg, for that matter, but few would put them in the same class as many companies that have failed spectacularly, although Sonnenfeld says they share a link to being allowed to operate without adequate corporate oversight. .

“It’s not crazy to talk about Theranos, or WeWork, Groupon, MySpace, WebMD, or Naptster – a lot of companies fell off the cliff because they didn’t have the right governance, they didn’t know, how do you get the best genius?” Sonnenfeld said.

In the case of Bankman-Fried, who stepped down as CEO of FTX as the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should have asked tough questions.

Tom Williams CQ-Roll Phone, Inc | Getty Images

But boards often can’t manage genius, Sonnenfeld said. Zuckerberg is another example. When mapformerly Facebook, announced it will be shifting its focus to the metaverse last year, Sonnenfeld said the board members were basically powerless. Meta laid off 11,000 employees this week and announced a hiring freeze because it has faced declining revenue and increased spending on metaverse bets that Zuckerberg has said will not pay out for a decade.

Tesla used to not be immune from Musk’s Twitter Takeover, and stocks plummeting this week after Musk told Twitter employees on Thursday he sell Tesla shares to “save” the social network. A Wall Street analyst decided that Twitter is now a business risk for Tesla and yanked stock from the best pick list.

Musk (although not the founder of Tesla) and Zuckerberg oversee the creation of two trillion-dollar company, although both are now losing market cap status in the decline of shares caused by various factors – from macroeconomic conditions to sector-specific risks, the market. valuation reset for high growth companies, and also leadership decisions.

Market research shows that founders can be a financial risk to the company’s value over time. Companies led by founders have been found to outperform those with non-founder leaders in the first year, according to a learned from Harvard Business Review which examined the financial performance of more than 2,000 public businesses, but almost no difference appeared three years after the company’s IPO. After this time, the study found that the founder-CEOs “actually began to detract from the value of the firm.”

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 take a seat on the company’s board or have a voice throughout the transaction, said Sonnenfeld, who brokered the deal. no supervision. Musk currently divides his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.

Companies led by lone geniuses need strong governance first and foremost. Sonnenfeld said having checks and balances built in with a board that has field expertise as well as the ability to oversee mission creep is critical to allowing these businesses to operate with less risk of costly mistakes.

Tesla and map governance scores in ESG rankings have long reflected this risk.

That doesn’t mean the market doesn’t need genius.

“Sure, we’re better off with Elon Musk in this world because we’re better off with Mark Zuckerberg,” Sonnenfeld said. “But they can’t be alone.”

Through the latest problems, this leader under fire has been critical of himself.

FTX’s Sam Bankman-Fried tweeted Thursday morning that he was “sorry,” admitting that he was “disgusted” and “should have done better.”

Zuckerberg said of mass layoffs in Meta in a statement that is the same part of apology and unintended restatement of governance issues, “I take full responsibility for this decision. I am the founder and CEO, I am responsible for the health of our company, for us. direction, and to decide how we execute that, including things like this, and this is ultimately my calling.”

musk tweeted“Be aware that Twitter is going to do lots of dumb things in the coming months.”

But whether it’s an apology or an admission of genius that it can also be dumb on occasion, Sonnenfeld says these leaders are better off letting others do the criticizing — faster, and more often.

“They need to be managed, they need to be guided and they need to have a board that can help them get the best out of themselves and not let them develop this sense of empire,” he said.

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