Bad week for market geniuses, from Elon Musk to Sam Bankman-Fried

From the collapse of FTX and the fall of cryptocurrency “rock star” Sam Bankman-Fried to chaos on Twitter, it hasn’t been a good week for the geniuses of capitalism. Elon Musk’s sudden and, in some cases, now-reversed decisions since taking over the social media company vindicates his claim that his role to date has been “not boring,” while also exposing corporate governance problems that have all too often been repeated to his detriment. of shareholders.

“There’s no doubt that Sam Bankman-Fried is a genius,” Yale School of Management leadership guru Jeffrey Sonnenfeld said in an interview Thursday on CNBC’s “Taking Stock.” “But what’s difficult is that somebody has to be able to put the brakes on them and ask them questions. But when they develop one of these lifelong imperial models … then you don’t really have any responsibility,” Sonnenfeld said.

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

β€œIt’s not crazy to talk about Theranos or WeWork or Groupon or MySpace or WebMD or Naptster β€” a lot of companies that fell off the cliff because they didn’t have the right management, they didn’t understand how can you get? the best of genius?” Sonnenfeld said.

In the case of Bankman-Fried, who resigned as CEO at FTX on Friday as the company filed for Chapter 11 bankruptcy, Sonnenfeld pointed to the lack of a board that had to ask tough questions.

Tom Williams | CQ-Roll Call, Inc. | Getty Images

But boards often fail to manage geniuses, Sonnenfeld said. Zuckerberg is another example. When MetaBefore Facebook announced last year that it would shift its focus to the metaverse, Sonnenfeld said board members were essentially powerless. Meta this week laid off 11,000 workers and announced a hiring freeze as it faces rising costs and declining revenue on a metaverse bet that Zuckerberg has said won’t pay off for a decade.

Tesla stocks have not been immune to Musk’s takeover of Twitter, with shares falling sharply this week after Musk told Twitter employees on Thursday that he was selling Tesla shares to “save” the social network. One Wall Street analyst decided Twitter was a business risk for Tesla and removed the stock from his top picks list.

Musk (though not Tesla’s founder) and Zuckerberg oversaw the creation of the two-trillion-dollar company, though both have now lost market cap status due to declining stock caused by a variety of factors, from macroeconomic conditions to sector-specific risks to the market. valuation reset for high-growth companies, as well as leadership decisions.

Market research shows that founders can create financial risk to the company’s value over time. A Harvard Business Review study of more than 2,000 public companies found that founder-led companies outperformed companies with non-founder leaders at the beginning of the year, but that there was virtually no difference three years into the company’s existence. IPO. After this period, the study found that founder-CEOs “actually began to drive down firm value.”

Key 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 or have a say throughout the transaction, Sonnenfeld said. no control. Musk now divides his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.

Companies led by single geniuses need strong management first. Sonnenfeld says internal checks and balances and a board with field experience, as well as the ability to focus on mission creep, are critical to allowing these businesses to operate with less risk of costly mistakes.

Tesla and Meta governance scores in ESG ratings have long reflected this risk.

This does not mean that the market does not need geniuses.

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

Through recent issues, these under-fire leaders have criticized themselves.

FTX’s Sam Bankman-Fried tweeted Thursday morning that he was “sorry” and admitted he “f—ed” and “should have done better.”

“I take full responsibility for this decision. I am the founder and CEO, responsible for the health of our company, for our direction and how we execute it,” Zuckerberg said in a statement about the massive layoffs at Meta. to make a decision, including things like that, and it was ultimately my call.

Musk he tweeted“Let’s face it, Twitter is going to do a lot of stupid things in the coming months.”

But whether it’s an apology or a genius admission that sometimes it can be dumb, Sonnenfeld says these leaders would do better than letting others criticize β€” sooner and more often.

“They need to have a board that can lead them, guide them and help them get the best out of them, and not allow this empire to develop a sense of invincibility,” he said.

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