From Elon Musk to Sam Bankman-Fried, it’s been a bad week for market geniuses

Are founders good or bad for business?

Of the FTX bankruptcy and demise of crypto “rock star” Sam Bankman-Fried Chaos on Twitter, it has not been a good week for the geniuses of capitalism. Elon Musk is abrupt and partly beautiful turned around Decisions since acquiring the social media company support his claim that his tenure to date is “not boring,” but also the sort of corporate governance issues that are repeated too often to the detriment of shareholders.

“Sam Bankman-Fried is without a doubt a genius,” Yale School of Management leadership guru Jeffrey Sonnenfeld said in an interview with CNBC’s Taking Stock on Thursday. “But the difficult thing is someone has to be able to stop them and ask them questions. But when they come up with one of those Kaiser-for-Leben models … then you really don’t 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 connection of being allowed to operate without adequate corporate oversight.

“It’s not crazy talking about Theranos, or WeWork, Groupon, MySpace, WebMD, or Naptster — so many companies that fall off the cliff because they don’t have proper governance, they haven’t figured out how to get the best genius.” ?” said Sonnenfeld.

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

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

But boards often fail to manage genius, Sonnenfeld said. Zuckerberg is another example. When Metaformerly Facebook, announced last year it was shifting its focus to the Metaverse, Sonnenfeld said his board members were essentially powerless. 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 said might not pay off for a decade.

Tesla Stocks weren’t immune to Musk’s Twitter takeover, either the stock plummets this week, after Musk told Twitter staff on Thursday Tesla shares sold to ‘save’ social media. A Wall Street analyst made that decision Twitter is now a business risk for Tesla and ripped the stock off a best-pick list.

Musk (although not the founder of Tesla) and Zuckerberg oversaw the creation of two trillion-dollar companies, though both have now lost that market cap status due to share declines caused by a variety of factors — from macroeconomic conditions to industry-specific risks , a market valuation provision for high-growth companies and also management decisions.

Market research shows that founders can pose a financial risk to the value of the company over the long term. according to a found that founder-led companies outperform those with non-founder-led executives at the start of the year Harvard Business Review study which examined the financial performance of more than 2,000 publicly traded companies, but three years after the company’s IPO it shows virtually no difference. After that time, the study found that founding CEOs “actually begin to degrade enterprise 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 of directors and had no vote throughout the transaction, Sonnenfeld said the deal closed no oversight. Musk now splits his time between six different companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink, and The Boring Company.

Companies run by lonely geniuses need strong governance first. Sonnenfeld says built-in checks and balances and a board with the expertise and ability to watch for mission creeps are critical in allowing these companies to function with less risk of costly mistakes.

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

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

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

Recent troubles have seen these under-fire leaders self-criticizing.

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

said Zuckerberg of the mass layoffs at Meta, in a statement equal parts apology and unintentional restatement of the governance issue: “I take full responsibility for this decision. I’m the founder and CEO, I’m responsible for the health of our company, for our direction and for deciding how we execute, including things like this, and ultimately that was my calling.”

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’ acknowledgment that it can occasionally be stupid, Sonnenfeld says these leaders would be better off letting others do the criticism — much sooner and much more often.

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

Leave a Reply

Your email address will not be published. Required fields are marked *