Facebook’s IPO was destined to be a milestone.
Unfortunately, it’s turning out to be “historic” in ways no one would have wished.
Market Risks, Non-Market Risks
Everyone knows–or should know–that there are market risks to any stock investment. In the best of circumstances, investors may well make money–or lose money–in a very rapid chain of events after an initial public offering
Those are market risks.
The problem in the Facebook IPO is that non-market risks were imposed on investors. These risks are unjustifiable, breaches of trust.
Legitimate questions about the underwriting process and market manipulation are outlined in a fine article in the Motley Fool, “The Tragedy of Facebook, How Wall Street Robbed Main Street America.”
Additional problems arose from breakdowns in online brokerage orders. Delays in fulfilling orders, delays in notifying investors that orders were filled, failures of cancellations to go through, combined to leave many investors locked into initial bids that could not be retracted as the stock slid before their eyes, on their computer screens.
Many online investors were trapped in a one-way ratchet: their orders were locked in at offering prices with the click of a mouse–but they were precluded thereafter from making timely adjustments in the same way. The exchange has reportedly set aside modest reserves for restitution–though one would not be surprised if it’s far too little to cover what’s required.
This was something worse than casino capitalism. Even casinos have a semblance of effective regulation.
Wall Street Occupies Facebook
Mark Zuckerberg’s letter to investors presented Facebook’s “social mission.” It would build upon evolving technology to enable individuals and groups to create and sustain new kinds of relationships. It’s a declaration of purpose entirely in line with 21st century leadership, as outlined in Serve to Lead.
In the run-up to the IPO, many expressed concerns that Zuckerberg was challenging Wall Street norms.
In the event, the disastrous IPO illuminated a company deeply enmeshed in the most questionable aspects of today’s Wall Street.
Does Mark Zuckerberg comprehend this? If so, is he able to act upon it, to restore trust in Facebook and the ideals he so recently, so eloquently espoused?
Mark Zuckerberg’s 21st Century Leadership Moment of Truth
Zuckerberg confronted a moment of truth. It’s difficult to argue persuasively that he and Facebook have emerged the better from it.
He cannot return to that moment. Nonetheless, he could take belated steps to align Facebook with 21st century leadership ideals (and, in the doing, could help transform those ideals into customary practices):
–Zuckerberg could begin with an apology. Not a conditional apology. Not a politician’s feeble “if anyone was offended….” apology. A flat-out apology. His lawyers would frantically wave their arms in concern. The public would be taken aback by such a common sense, right-minded, decisive assertion.
–He could commit the company to unprecedented transparency in a review of the underwriting process. That would mean sharing whatever information is necessary to enable independent individuals to come to a credible evaluation of how the shares were analyzed and priced for the IPO, and made available to insiders.
–Publicly back independent review, with maximal transparency, of the trading breakdowns at NASDAQ.
–Call upon brokerages to make investors whole, with independent oversight and real-time transparency. Leave it to the brokerages and exchange to deal with allocation of liability between themselves. Attempting to drop the losses of brokerage breakdowns on customers, who will likely turn to class action lawsuits would be an indefensible failure to serve, a breach of trust.
Will Zuckerberg and Facebook grasp the nettle? Conventional thinking would say not.
Perhaps, as some suggest, his extraordinarily rapid rise to responsibility has rendered him bereft of the judgment required to respond to, much less redefine the current circumstances.
And yet… if he were to act decisively in favor of those he should be serving most faithfully–the general public and the small investors who heeded his call, to their detriment–he would be doing more than doing the right thing.
He would be breaking ground in 21st century leadership. He would be taking risks to meet the ideals he has put forward for Facebook. And, he just might be rewarded with a unique, enduring relationship of trust with people everywhere.
Wall Street Was the Warm-Up–The Real Test Lies Ahead
From a longer term perspective, it might also prepare Facebook for the much bigger challenge just over the horizon: reconciling its custody of immense of stores of data, ripe for monetization, with public expectations of privacy and autonomy.
New York may have been the opener, but the main event is likely to be in Washington.
Facebook Misses 21st Century Leadership Opportunity.