Mark Zuckerberg and the Founder-as-CEO Problem
Photograph by Marcio Jose Sanchez/AP Photo
As Facebook’s (FB) stock continues to slide, amid what appears to be growing skepticism about its future revenue prospects, there has been a consistent drumbeat of opinion around a single thought: Should Mark Zuckerberg be replaced as chief executive officer of the company he created?
Some critics of the company—not just of its initial public offering, but of its advertising model and mobile strategy as well—seem to believe Zuckerberg is “in over his hoodie,” as one popular phrase puts it. Silicon Valley (where Facebook was raised, if not actually born) has a reverence for the founder-as-CEO, at least in part because of such transformational stories as the rise of Steve Jobs at Apple (AAPL). But is it always best to have a founder running a gigantic public company? Or does the founder mystique contain just as much potential for disaster as it does for success?
Given the kind of hopes and dreams—in many cases, vastly overinflated ones—that were riding on Facebook’s IPO, it’s probably not surprising that the company and its young CEO would be getting a storm of criticism after the fact. Based in part on its massive valuation in private markets such as SecondMarket, Facebook was expected to go public with a market value of $100 billion or more, and many were hoping it would climb skyward from there. How could it not, with almost a billion users and off-the-charts engagement rates?
As it turned out, of course, that $100 billion was a pie-in-the-sky target. Facebook stumbled out of the gate and has been falling ever since—at less than $20, the shares are almost 50 percent lower than they were when the company first went public. The skepticism dial was turned up even further when the company came out with its first quarterly report as a public entity. Many analysts saw a less-than-encouraging picture: a company with problems in mobile—which everyone seems to agree is the future of content—and some underwhelming estimates about future performance.
Within days of the earnings report, there were calls for Zuckerberg to step aside: One of the first came from Reuters (TRI) blogger John Abell, who wrote a post stating: “Facebook needs a new CEO.” Abell said Zuckerberg might be a visionary, but that’s not what Facebook needs right now:
He needs to get out of the way—not because we can judge him a disaster based on a single earnings period, but because he isn’t playing to his strength. … Facebook needs its spiritual leader and chief innovator in a hoodie. But it doesn’t need him as CEO, placating investors in a collared shirt. There are plenty of people who could manage the Facebook business.
PandoDaily founder Sarah Lacy responded to Abell with a fairly venomous post, in which she argued that Abell simply didn’t know what he was talking about. It is well-known, she argued, that “founder CEOs unequivocally have the most success, and the general school of thought in the Valley [is] that you are almost always better off not ousting a founder, even if that founder is doing a horrible job.” (Andreessen Horowitz, a leading example of the new breed of SV venture funds, has written about why it believes founding CEOs are almost always better.) Lacy also noted, quite rightly, that Zuckerberg has helped build a $70 billion-dollar corporation, and she pointed to perhaps the most egregious case of a flawed “anyone could run that business” approach—namely Yahoo! (YHOO).
There’s no question that the revolving door at Yahoo is a classic case of mismanagement writ large. But one of the CEOs through that door was the company’s co-founder, Jerry Yang, and he had even less success in turning Yahoo around than anyone else—which helps to make the somewhat obvious point that not everyone can be Steve Jobs, returning to save their company and transforming it into a stock market superstar. And yet, supporters of the founder-as-CEO model seem to believe that the odds of such an outcome are higher with the founder than with someone else. That’s in part why there was so much positive response to Larry Page returning to the CEO spot at Google (GOOG) (although the benefits of that move are still debatable).
Certainly plenty of companies have been mismanaged after either being acquired or having the CEO forced out, a list that would probably include Myspace and AOL (AOL). In some cases, having a visionary at the top has clearly helped—such as Amazon.com (AMZN) with Jeff Bezos. But there are also companies where having a founder remain has caused more problems than it solves, and Research In Motion (RIMM) is arguably one prominent example.
Insiders and investor alike talk about how Jim Balsillie and Michael Lazaridis made sense as co-CEOs for a time at RIM, but eventually their commitment to a certain vision changed from a benefit to a gigantic flaw. The result? Billions of dollars in market value destroyed almost overnight.
To take a smaller example, Twitter swapped out co-founder Evan Williams and replaced him with Dick Costolo, someone with no personal stake in the early vision of the network. Has that been a good thing or a bad thing? It has certainly shifted the orientation of the company toward revenue-generating models such as advertising—a move that appears to be driven primarily by a desire to justify the company’s alleged market value. Would it have been better to stick with a founder as CEO? And if it wasn’t better for Twitter, then why is it better for Facebook?
To a large extent, of course, all of this discussion is moot: Thanks in part to Silicon Valley’s belief in the power of the founder as CEO, Mark Zuckerberg controls the fate of the company in a way that few others do, even Google’s co-founders. Not only does he hold a majority of the stock through multiple voting shares and proxy agreements, he also controls the board of directors—the same board that would have to act in order to replace him as CEO. For better or worse, Facebook has become the ultimate test of the founder-as-CEO mythos. Will it become an Apple-style success story, or a RIM-style cautionary tale?
Also from GigaOM:
One Big Red Flag for Facebook Investors: Zuckerberg’s Iron Grip (subscription required)