From Elon Musk to Sam Bankman-Fried, a bad week for market geniuses, but was it their fault?

From Elon Musk to Sam Bankman-Fried, a bad week for market geniuses, but was it their fault?

From the bankruptcy of FTX and the downfall of crypto “rock star” Sam Bankman-Fried to the mayhem on Twitter, it hasn’t been a good week for the geniuses of capitalism. Elon Musk’s abrupt and in some cases already reversed decisions since taking over the social media company confirm his claim that his tenure so far “isn’t boring”, but also exposes the kind of problems of corporate governance that are too often repeated to the detriment of shareholders.

“Without a doubt, Sam Bankman-Fried is a genius,” Yale School of Management executive guru Jeffrey Sonnenfeld said in an interview with CNBC’s “Taking Stock” on Thursday. “But what’s hard is somebody has to be able to hold them back and ask them questions. But when they develop one of these lifetime emperor models… then you really don’t have any responsibility,” Sonnenfeld said.

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 claims they share the connection of be allowed to operate without sufficient 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 understand , how do you get the best out of a genius?” said Sonnenfeld.

In the case of Bankman-Fried, who resigned as CEO at FTX as the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the absence of a board of directors who should have asked difficult questions.

tom williams | CQ-Roll Call, Inc. | Getty Images

But boards are often unable to manage genius, Sonnenfeld said. Zuckerberg is another example. When Meta, formerly Facebook, announced it would focus on the metaverse last year, Sonnenfeld said its board members were essentially helpless. Meta laid off 11,000 of its employees this week and announced a hiring freeze as it faced falling revenue and increased spending on a metaverse bet that Zuckerberg says may not pay off for a while. decade.

You’re here Shares have not been immune to Musk’s takeover of Twitter, with the stock tumbling this week after Musk told Twitter employees on Thursday that he had sold shares of Tesla for ” save” the social network. A Wall Street analyst has decided that Twitter is now a business risk for Tesla and removed the stock from a list of top picks.

Musk (but not the Tesla founder) and Zuckerberg oversaw the creation of two trillion-dollar companies, although both have now lost that market capitalization status in stock declines caused by a variety of factors – from macroeconomic conditions to sector-specific risks, a market revaluation of high-growth companies, as well as leadership decisions.

Market research shows that founders can pose a financial risk to company value over time. According to a Harvard Business Review study that examined the financial performance of more than 2,000 public companies, found that companies led by founders outperformed those whose leaders were not founders at the start of the year, but practically no difference appears three years after the creation of the company. IPO. After this period, the study found that founder-CEOs “actually begin to hurt company 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 serve on the company’s board or have voice throughout the transaction, said Sonnenfeld, who gave the deal. no forgetting. Musk now divides his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.

Companies run by lone geniuses need strong governance above all else. Sonnenfeld says having built-in checks and balances and a board that has on-the-ground expertise as well as the ability to monitor mission creep is key to allowing these companies to operate with less chance of mistakes. expensive.

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

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

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

Throughout recent issues, these leaders under fire have been self-critical.

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

Zuckerberg said of the massive layoffs at Meta in a statement that is equal parts apology and unintended restatement 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 business, for our direction, and for deciding how we execute this, including things like this, and that was ultimately my call.”

Musk tweeted“Please note that Twitter will be doing a lot of stupid things in the coming months.”

But whether it’s an apology or a genius admission that he can also be stupid on occasion, Sonnenfeld says those leaders would be better off letting others criticize — much sooner and much more often.

“They need to be managed, they need to be guided and they need to have a board that can help them bring out the best in themselves and not let them develop this imperial feeling of invincibility,” he said. he declares.


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