Facebook's obvious disregard for stakeholders

Companies today seek to align their focus on all five of their stakeholders in order to position themselves for long-term competitive advantage.

Facebook, however, appears to be disinterested in stakeholder alignment.


You've already heard about, or have been involved in, Facebook's IPO debacle. Some fault for that fiasco rests outside of Facebook, but much of it rests inside. In mid-May, the stock was expected to trade at $38. It was higher than that for a short time on opening day but has been nowhere near $38 since. The stock has risen in the last two weeks, closing yesterday at $32.06, down 16% from IPO price. However, even as the stock trends upward, Facebook and its investment banks are being sued by dozens of shareholders who allege that financial forecasts for Facebook were cut prior to the IPO but the change was not publicized. 

Facebook contends it did nothing illegal with regard to changing its forecasts or how it announced the changes. Companies truly concerned with stakeholder alignment care when their stakeholders, including shareholders, are angry and feel cheated. Facebook has shown it does not care, as long as what it did was legal. Shareholders don't care much about the touchy-feely side of business, as long as they are making money. However, since they are obviously not making money, they will scrutinize (and sue!) Facebook until they are compensated and do not feel duped.

Duped investors are not the foundation of long-term success. 

On to the next action that shows Facebook's blatant disregard for its stakeholders...

Yesterday, Facebook changed its users/customers' email addresses to the ones Facebook created for them. In 2010, Facebook introduced its own email service but it was not widely used. Yesterday, without any notification to its users, Facebook changed users' profiles to have their Facebook-created-whether-you-want-it-or-not email address as the primary email on the account. They did not change the way they reach users, just the way users could reach each other.

Facebook's customers do not want another email account and they certainly do not want Facebook changing their accounts without notification. In response to the outrage yesterday, Facebook did not explain or even admit to altering the default account settings. Facebook has made similar changes to accounts without notification. They continue to show lack of respect for their customers.

What Facebook should recognize is: they need its stakeholders more than we need Facebook.

Investors can make money elsewhere and users can be in touch with friends on other sites, and most are. If Facebook continues to show disregard for its investors and users, two primary stakeholders, they will erode the trust necessary for long-term sustainability. If Facebook continues to dupe investors and users, another social site can take its place. Get ready, that's what is likely to happen.

Killing your customers is bad for business

Aftermath of the rental car crash in which two sisters died
More than two years ago, a story about two sisters killed because their Enterprise rental car had been recalled but had not been repaired was in the news. A jury awarded the girls' family $15 million. Enterprise, the nation's largest rental car company, suffered a brief blow to their public relations when the award was publicized but the death of the two girls did not prompt changes to rental car company practices.

They still rent and sell cars without fixing safety recalls. 

What kind of corporate culture exists within the rental companies that continue to rent unsafe cars? 

When companies are willing to risk the lives of their customers, the message is clear: your money is more valuable than your life. How long can companies who risk their customers' lives stay in business? How long will people continue doing business with companies that show such disrespect and lack of trustworthiness?

If they are willing to risk the lives of their customers, what do you think their internal corporate culture is like? It would be reasonable to infer lack of respect for employees is inherent in those cultures too.

This is an example of companies putting one stakeholder--investors--above the rest. Customers have died, yet significant changes have not taken place in the industry. 

There is something wrong with an industry that refuses to keep its customers safe. There is something wrong with companies who refuse to honor safety recalls until their customers find out about it. At some point, customer trust will be eroded beyond repair. Where will the industry be then? Which companies will remain?

Senator Boxer is asking the rental car companies to pledge "a permanent commitment to not rent out or sell any vehicles under safety recall until the defect has been remedied." Hertz agreed to sign the Senator's pledge but other companies have not. Enterprise has not, saying they already have such a practice in place (but it allows for the sale of unrepaired cars to be sold wholesale). No word yet on whether Avis or Dollar Thrifty will join the pledge.  (SOURCE: USAToday article)

Senator Boxer is drafting legislation to force the rental car companies to repair cars recalled for safety. That such legislation is needed is pitiful.

Customer lives don't matter to some of the companies, but their wallets do. 

What can you do?
  1. Find out your rental car company's policy on safety recalls. If they do not honor the recalls, switch.
  2. If your employer rents from one that does not honor recalls, switch. 
  3. If you are responsible for your employer's selection of a rental car company, investigate this immediately. You may be inadvertently putting your coworkers at risk, and the company along with it. 
  4. Spread the word about this issue to frequent traveling friends and colleagues. They might assume rental cars are repaired and would appreciate learning the truth.
  5. If you work in one of the companies, address this internally. Assess the culture of distrust created and work to rebuild trust with your customers and employees. Realign the focus on all stakeholders, not just investors. Investors won't be happy when customers refuse to trust you, so realigning focus will benefit all stakeholders.
As an employee and customer, put your money where your trust is by showing the rental car companies that killing customers is bad for business.

If your company needs help with stakeholder alignment, please call Kelly Tyler. She will share a diagnostic tool to aid your effort and could save the company from losing customers, employees, and investors.

Wall Street's gibberish no longer tolerated

Wall Street companies who rely on public trust (and money!) better realize their acronyms, fancy words, and gibberish are no longer being tolerated. Their corporate cultures need to change.

The latest evidence that Wall Street corporate cultures are no longer being tolerated is the investigations and lawsuits launched after last week's Facebook IPO fiasco.

The public is interested to learn how Morgan Stanley made money off the deal by "short trades". The public is interested to learn how the banks involved kept lowered growth expectations from some investors, while at the same time promoting the stock to those same people. The public is interested to learn whether legal and ethical lines were crossed.

Facebook and Morgan Stanley are the latest companies facing scrutiny. Others include Goldman Sachs and JPMorgan Chase, which have been in the news for less than stellar reasons this year.

Gone are the days when high-powered men in suits could seemingly pat the public on the head and tell it to run along like a little child. The public wants answers and is not going to tolerate the patronizing arrogance of Wall Street any longer.

With so much money rolling in, why should Wall Street firms care what the public wants?

Because the public includes investors and customers.

The public includes the Baby Boom generation who wants to invest in companies they believe in and Gen Y who wants to work for companies they believe in. Also, the public is slowly starting to recognize the importance of long-term sustainability over a short-term snapshot. We're not impressed with one good quarter now and then. 

Narrowly skipping along the thin line of ethical behavior is not going to cut it for the public any longer.

The firms that align their behavior with all of their stakeholders, not just their stockholders, will not need to worry about the pressures from the public. They will speak in plain terms people understand because they don't need to hide behind gibberish.