Unforced CEO Error Created a Silly Distraction for Salesforce Stock

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Historically one of the top names in cloud-based enterprise applications, Salesforce.com (NYSE:CRM) has had a rough go so far in the latter half of this year. Unfortunately, secondary factors associated with the U.S.-China trade war are penalizing CRM stock. Though the company only generates about 10% of its total revenue from Asia, the trade war has imposed weaknesses in other areas of the global economy.

A Big Mouth Hurt Salesforce Stock at Just the Wrong Time
Source: Bjorn Bakstad / Shutterstock.com

As such, the Salesforce stock price was already under pressure. Since late August, shares are down nearly 7%. This year, management has released poor earnings results that have spooked investors. They also made expensive acquisitions, leaving many to wonder about the viability of said buyouts. Certainly, this is no time for the executive leadership to get political. But that’s exactly what happened.

Last week, Salesforce CEO Marc Benioff created a stir when he publicly went after Facebook (NASDAQ:FB). In an interview with CNN, Benioff strongly asserted that the federal government should breakup Facebook.

“It’s addictive, it’s not good for you, they’re after your kids, they’re running political ads that aren’t true,” said Benioff, with the latter point aimed at the Trump administration. As an influential organization, Benioff claims that Facebook should take responsibility for what occurs on their platform.

This antagonistic approach toward Facebook or President Trump isn’t surprising. However, politics is typically a no-win solution in the professional field. That’s why employers discourage such water cooler topics. Thus, this is one reason why I’m concerned about Salesforce stock: Benioff is creating an unnecessary distraction.

More critically, though, the CEO attacked Section 230 of the Communications Decency Act — which has been described as “one of the most valuable tools for protecting freedom of expression and innovation on the internet” — essentially biting the hand that feeds him.

Unnecessary Drama for Salesforce Stock

After Benioff attacked Facebook and its ancillary political implications, the rant raised eyebrows. Specifically, The Verge contributor Nick Statt noted a blatant hypocrisy.

Under Section 230, the law states that “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Benioff accused Facebook of abusing this law by allowing Trump to run political advertisements with false information.

Because of Section 230, Facebook or any other company is not responsible for harmful content on their platform. Thus, Benioff argued that the government should abolish this law. There’s just one problem: Section 230 is actively supporting the CRM stock price.

Allegedly, Salesforce provided technical services to a website called Backpage. Awkwardly, federal authorities determined that Backpage was essentially a CraigsList for money laundering and prostitution. Thus, it’s critical for Salesforce, and by deduction Salesforce stock, to distance themselves from the rogue website.

I’d argue that the company was well on its way to doing that. Personally, I never would have heard about Backpage or the Salesforce connection to it if Benioff hadn’t opened his mouth. Now, it’s all I can think about.

Of course, this isn’t to say that the CRM stock price will decline merely because Benioff has loose lips. That said, it’s not creating a great optic for the entire organization.

Perhaps if this were a decisive bull market, I wouldn’t care so much about the potential impact to Salesforce stock. But that’s not the situation we’re in. Instead, we have a cautious trade truce that could rapidly escalate back into vitriol. Further, acute weakness in European markets will necessarily impact all multinational firms.

If Benioff wanted to get political, he chose the wrong time to do it.

Can CRM Stock Mitigate an Unforced Error?

Actually, he shouldn’t get political at all. Ironically, politicians have this act down to a science. When faced with a difficult question: divert, divert, divert.

What makes this fiasco especially terrible for Salesforce stock is that it’s an unforced error. No one asked Benioff to start ranting about Facebook or President Trump. It’s not just about his contradictory opinions; rather, the head exec has demonstrated a lack of discipline required to lead large, influential organizations.

Eventually, this PR fiasco will fade. However, I keep going back to this point: CRM stock already faced rough waters based on severe geopolitical and economic headwinds. Why on earth did the CEO handicap his company further? It truly boggles the mind.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/unforced-ceo-error-created-a-silly-distraction-for-salesforce-stock/.

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