Rarely has a company risen so fast, from startup to globe-straddling giant, and then crashed into such a storm of problems.
Launched in 2004, Facebook now has 2.3 billion users around the world and its hugely profitable, with net income of $5 billion in the third quarter. Yet it faces a crisis of trust in both its ethics and its business model, thanks to a series of failures including misstatements to advertisers, a massive leak of consumer data, the use of the site to stir up deadly ethnic unrest, and the Russian disinformation campaign during the 2016 election.
Scrutiny of the company intensified after the New York Times published a story Nov. 14 that described in painful detail how Facebook founder Mark Zuckerberg and chief operating officer Sheryl Sandberg responded to its problems with delay, denial and deflection. “Bent on growth, the pair ignored warning signs and then sought to conceal them from public view,” even employing a Republic opposition-research firm “to discredit activist protesters, in part by linking them to the liberal financier George Soros,” the Times reported.
How did the world’s largest social network go astray so fast, to the point where a Washington Post columnist attributed the company’s mess to “astonishing cluelessness and moral rot in the company’s top executive leadership”? And what can other companies, beholding this spectacle, learn about how to avoid such management missteps?
We’ve gleaned six main takeaways:
Establish Your Values Early in the Game
“A crisis really evidences the core values of a company. In this case what they evidenced is further damaging to their brand,” Karen Brenner, clinical professor at New York University Stern School of Business, told From Day One. “Successful companies don’t decide what their values are in the midst of crisis.”
The lack of evidence of a moral compass caught the company’s leaders without a sense of direction when the company’s problems began to mount, said Brenner. “I think it has been a very slow response to what is frankly an existential challenge to the company. They were in a period of denial for a long time and that didn’t serve them well.”
Don’t Treat a Fundamental Problem as a Political One
“This is the story of a company that built a machine they didn’t quite understand, couldn’t control, and tried to hide their problems because it was making them so much money,” said Times journalist Nicholas Confessore, who co-wrote the Nov. 14 story, on MSNBC.
Because the company’s leaders failed to look to the root of the problems, they never confronted the contradictions in their business model. “The same thing that makes Facebook so profitable—the fact that they know everything about me and you: what we like, what we respond to, what we share—is precisely what makes it an effective machine, probably the best ever invented, for spreading propaganda and hate. That is the paradox they have right now.”
Listen to Feedback, Wherever It Comes From
Facebook’s pattern of dealing with rising criticism has generally been to go into defensive mode rather than taking action. At the Techonomy 18 conference last week in California, a panel of four experts convened to address the question, “Can Facebook Recover?,” but the company declined to send a representative, “essentially evading the dialogue that they’re created a need for,” said founder and moderator David Kirkpatrick.
Venture capitalist Roger McNamee, one of the panelists, recalled how he went to meet with Facebook executives in October 2016 to voice his alarm about the epidemic of misinformation on the network as the Presidential election approached. “They were blind to feedback,” he said.
Company insiders, too, raised alarms, including security chief Alex Stamos, who left the company earlier this year after his call for a more aggressive policy against misinformation was rebuffed.
If Your Focus Is Too Narrow, You’ll Get Blind-sided
One of the reasons Facebook grew so dominant so quickly is because it focused narrowly on the metrics of rapid growth, epitomized by the in-house motto “move fast, break things,” with the presumption that Facebook’s overall effect on society was a glowingly positive one. The obsession with growth led Zuckerberg to hyper-focus on his rivals, Eli Pariser, author of the 2011 book The Filter Bubble, told New York Times columnist Jim Rutenberg.
“I just think the problems that Facebook was looking at in 2012 and 2104 were, ‘Hey, is Twitter going to each our lunch? Is Snapchat going to eat our lunch?’” Pariser said.
Besides missing some of the big threats, Facebook was missing a lot of small things, whether intentionally or not, said Techonomy panelist Brian Wieser, a senior analyst at Pivotal Research Group. In his research, for example, he discovered the Facebook was claiming more 18-34-year-old U.S. users than the total population of that group in the country, which he called “actively misleading.”
Such discoveries inspired him to compile a taxonomy of 13 different kinds of managerial problems at the company. “Sloppiness in one place suggests sloppiness in so many others,” he said. “I’ve come to the realize that the company is simply badly run.”
You Need to Be Accountable, for Your Own Good
One of Facebook’s core problems, experts say, is one of poor corporate governance. Facebook’s stock structure leaves most of the power in founder Zuckerberg’s hands. While he owns or controls about 15% of total shares, he has 60% of the voting shares. “No matter how poor a job Mark Zuckerberg has done lately running Facebook, he’s almost certainly not going anywhere, because he’s effectively his own boss,” wrote Troy Wolverton in Business Insider.
While at least one company director, investor Erskine Bowles, warned Zuckerberg and Sandberg that the fallout from Russian misinformation would be worse than they expected, their lack of quick action underscores the importance of having “people with the courage to address the issues” in a company’s leadership, said Prof. Brenner. “It’s often when companies are successful they miss a lot of these issues, they get complacent and stop asking the hard questions.”
When concern was mounting in 2016 about the role of Facebook in the President election, “Clearly, a much broader investigation should have been done, one that meets a standard of independence,” said Brenner.
If You Don’t Manage Yourself, Someone Else Will
Some experts have suggested that only a change in management will fix Facebook’s problems. Yale University management professor Jeffrey Sonnenfeld said on CNBC last week that Sandberg “probably should be replaced” and that an outside director like Bowles should replace Zuckerberg as board chairman.
But the more long-ranging crackdown may come from Congress, which is growing mistrustful of tech giants in general. “As more and more information comes out about how these guys operate, it’s becoming conventional wisdom among Democrats that there is a serious policy problem here, Matt Stoller, policy director at the Open Markets Institute, told the New York Times. Stoller has called for big tech platforms to be broken up and regulated.
The European Union has already made such a move with its General Data Protection Regulation (GDPR), which went into effect this year. Analyst Wieser is betting on more government supervision to come. “If you want to bet Mark Zuckerberg vs. world governments, I am going to guess that until Facebook can acquire nuclear weapons, world governments probably win, and so it does enhance the chances of regulation.”
In an hour-long videoconference broadcast to Facebook employees last week, Zuckerberg denied any cover up of the company’s problems but acknowledged that many of the criticisms had been fair and important. While Facebook also says it has redoubled its efforts to address its issues, some observers think the company needs to look even deeper into itself and its role in society. “This business model is extremely dangerous for society,” said McNamee at the Techonomy conference. “I don’t believe [the problems] can be fixed without changes in the business model.”