Mark Zuckerberg’s mismanagement has gotten Facebook (NASDAQ:FB) in a heap of trouble and has caused Facebook stock to underperform this year and, more importantly, put the company’s future in jeopardy. It’s time for him to step down not only as chairman, but as CEO as well.
If FB hires a new, fresh, more experienced leader, Facebook stock will get out of the rut in which it’s currently mired. Moreover, with a new CEO, users, customers and investors can regain confidence in FB and Facebook stock and the company will be less likely to have similar problems in the future.
Facebook’s Alleged Misstatements
Recently, the media began covering a lawsuit which was filed in 2016 against Facebook because new allegations against the company were made for the first time last week. After reviewing internal FB documents, small advertisers allege that the company exaggerated the amount of time that videos on its website were watched by 150%-900%. Additionally, according to the plaintiffs, Facebook knew about the misstated data over 18 months before it disclosed the issue.
And importantly, FB has at least partially corroborated the charges, as in September 2016, it admitted that it had inflated the amount of time that users watched videos by 60%-80%. But now the plaintiffs, citing papers they obtained in the course of their lawsuit, say that Facebook hid the issue for many months and greatly downplayed the extent to which the data was inflated. It’s difficult to believe that the plaintiffs would lie about or misstate the contents of written information they obtained from Facebook.
The Consequences for FB and Facebook Stock
Ironically, the tremendous gravity of this issue for Facebook and Facebook stock is very well illustrated by a statement that was written by the company’s own VP, Business and Marketing Partnerships, David Fischer, when he (allegedly partially) disclosed the issue in 2016. He wrote:
This is about how seriously we take our partners’ commitment to our platform, and how their investments with us wholly depend on the transparency with which we communicate. We know we can’t have true partnerships with our clients unless we are upfront and honest with them, including when we make mistakes like this one.
As Fischer indicated, people don’t want to do business with companies that blatantly lie to them about crucial issues because they may not be getting the product or service that they’ve been promised. So Facebook’s alleged misstatements have jeopardized its relationships with its advertisers and, consequently, the advertising business on which the company and FB stock depend.
After the alleged misstatements, government regulators will also likely be far less willing to trust the company and give it latitude. And, finally, to the extent that the public becomes aware of this issue, it will be even less willing to trust Zuckerberg’s explanation about the Cambridge Analytica scandal and the company’s promises as far as security are concerned.
Facebook’s Other Problems
Even before this issue came to light, Facebook and Facebook stock had been in serious trouble. In March, I warned that revelations about the company, in tandem with increasing competition, could negatively affect its user data and Facebook stock. The company’s second-quarter results show that my apprehension about the outlook of FB stock was well-founded. The results also showed that, largely because of these avoidable scandals, the company is spending a great deal of its time and money on beefing up its security.
Why Zuckerberg Has to Go
Zuckerberg may be able to credibly say that he wasn’t aware of Facebook’s alleged misstatements regarding the video viewership issue. He also indicated that he was unaware about the tens of millions of profiles obtained by Cambridge Analytica, blaming the scandal on “mistakes.”
But even if Zuckerberg did not know about these issues, he’s clearly not up to the task of running Facebook. Because, first of all, he should have been on top of the company’s policies regarding the sharing of data with third parties, and he should have made sure that Facebook came totally clean about the video viewership error. And clearly, these incidents show that he has hired managers under him who either aren’t competent or aren’t ethical.
The team of Zuckerberg and COO Sheryl Sandberg has failed owners of Facebook stock and the company’s users. It’s time for new, more experienced leadership to take the company’s helm. Perhaps Zuckerberg can stay on to run special projects or consult with the new CEO. But he definitely has to step down as CEO.
Some will say that Zuckerberg, who owns the majority of the voting shares of Facebook stock, will refuse to resign. But founders of other large companies, including Lululemon (NASDAQ:LULU) and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), have been persuaded to resign from the CEO position. I think that Zuckerberg can also be convinced that it’s in the best interests of his company and of the owners of Facebook stock (including himself) for him to resign.
As of this writing, the author did not own shares of any of the companies named.