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 fall of crypto “rock star” Sam Bankmanfried to the chaos of Twitter, it hasn’t been a good week for capitalist geniuses. Backing the sudden, and in some cases, already reversing his decisions since taking over the social media company, Elon Musk’s claim that his tenure has so far been “not boring”, but also reveals the kind of corporate governance issues that often recur to the detriment of shareholders.

“Without a doubt, Sam Bankman-Fried is a genius,” Jeffrey Sonnenfeld, a leadership instructor at Yale School of Management said in an interview with CNBC’s “Jeffrey Sonnenfeld” on Thursday. “But what’s hard is someone has to be able to hold it back and ask them questions,” Sonnenfeld said. “But when they develop one of these archetypes of a lifelong emperor… you really don’t have the accountability.”

Few would question the genius of Elon Musk, or Mark Zuckerberg, in this regard, but few would put them in the same category as the many companies that have failed spectacularly, although Sonnenfeld says they share the link with allowing them to operate without adequate oversight from companies.

“It’s not crazy to talk about Theranos, WeWork, Groupon, MySpace, WebMD or Naptster – there are so many companies that are falling off the cliff because they don’t have proper governance, and they haven’t figured out how to get the best 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 noted that no board should have asked tough questions.

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

But Sonnenfeld said councils are often unable to manage genius. Zuckerberg is another example. When deadSonnenfeld, formerly known as Facebook, announced that it would shift its focus to the metaverse last year, and 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 a drop in revenue and increased spending on a metaverse bet that Zuckerberg said may not pay off for a decade.

Tesla Stocks weren’t immune to Musk’s Twitter takeover, with the stock plummeting this week after Musk told Twitter employees Thursday that he sold Tesla shares in order to “rescue” the social network. A Wall Street analyst decided that Twitter was now a business risk for Tesla and snatched the stock off his top picks.

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

Market research shows that founders can pose a financial risk to a company’s value over time. Founder-led companies turned out to outperform firms with non-founder leaders early in the year, according to a study from Harvard Business Review that examined the financial performance of more than 2,000 public companies, but almost no difference appears three years after the company. underwriting. After this time, the study found that founders and CEOs “actually begin to devalue the company.”

Sonnenfeld, who gave the deal, said the major players in the Elon Musk deal on Twitter, including Fidelity Investments, Brookfield Asset Management and former Twitter CEO and co-founder Jack Dorsey, did not hold a seat on the company’s board of directors or had a voice throughout the deal. No censorship. Musk now splits his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company.

Companies led by lone geniuses need strong governance first and foremost. Sonnenfeld says that having built-in checks and balances and a board of directors with field experience as well as the ability to monitor task creep is critical to allowing these companies to operate with less risk of costly blunders.

Tesla and Meta’s governance scores within ESG’s ratings have long reflected this risk.

This does not mean that the market does not need geniuses.

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

By recent releases, it was these leaders who faced the fire of criticism for themselves.

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

In a statement of equal apology and an inadvertent restatement of the governance issue, Zuckerberg said of Meta’s mass layoffs, “I take full responsibility for this decision. I am the founder and CEO, and I am responsible for the health of our company, for our direction, and for determining how we will implement this, including: So things like this, and that was my ultimate calling.”

musk chirp“Please note that Twitter is going to do 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 at times, Sonnenfeld says these leaders would be better off letting others criticize — much sooner, and more often.

“They should be managed, they should be directed and they should have a board that can help get their best and not allow them to develop this indomitable imperial feeling,” he said.

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