When Entrepreneurs Post Impulsively, Their Companies Pay the Price. Should Their Social Media Be Regulated?
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It was the tweet read ‘round the world -- or at least all of Wall Street.
“Am considering taking Tesla private at $420,” Tesla CEO Elon Musk wrote on the morning of Aug. 7. “Funding secured.”
Those nine words resulted in intense scrutiny, an onslaught of public speculation, a company board review, fraud charges filed by the SEC, two separate $20 million settlements and Musk’s agreement to step down as Tesla’s chairman for at least three years (though he plans to stay on as CEO). It wasn’t the first time the outspoken entrepreneur has ruffled feathers on a wide scale via social media -- in 2018 alone, he sparred with Warren Buffett on Twitter, feuded for months with British caver Vernon Unsworth and regularly condemned short-sellers.
But Musk isn’t the only founder-CEO who has received a slap on the wrist for a controversial representation of his own company on social media.
Brandon Truaxe, founder and CEO of Deciem, the cosmetics company behind breakout brand The Ordinary, also had an eyebrow-raising year. He made seemingly off-the-cuff business decisions -- derogatory comments about a competitor, announcements to end partnerships and, finally, the decision to close all of Deciem’s store locations -- on the company’s social media account, which he decided to personally take over for months.
Although Musk used his personal social media account to make statements that significantly affected his company -- and Truaxe used Deciem’s to do the same -- the social media track records of both founder-CEOs have one key factor in common: Their online statements weren’t regulated via any sort of oversight. And that singular commonality ended up costing both of them a job.
For Musk, it was his position as Tesla’s chairman. For Truaxe, a hot-button lawsuit filed by majority investor Estée Lauder removed him as CEO, forbade his future employment with Deciem and even led to a restraining order.
The ambiguity of oversight for founders representing their companies on the internet has “been a problem for a long time -- even before the widespread prevalence of social media,” said Jeffrey A. Sonnenfeld, professor and senior associate dean at Yale’s School of Management. One prominent example? In 2007, the public learned that Whole Foods co-founder John Mackey had been posting on a Yahoo Finance forum under a pseudonym for seven years, giving himself and his company rave reviews while at the same time trashing rival supermarket chain Wild Oats. Mackey’s plan was for Whole Foods to purchase Wild Oats, and he may have been attempting to drive up his company’s valuation and lower his rival’s price tag. But a lawsuit by the Federal Trade Commission seeking to block the acquisition unmasked his posts.
Mackey’s online antics were “very much parallel to … the problems of Brandon Truaxe, Elon Musk or [Mark] Zuckerberg, who believe they can think out loud,” Sonnenfeld said. “You can’t think out loud.”
Harrison Monarth, an executive coach and founder of GuruMaker Executive Development, agreed. “Nowadays, leaders like Elon Musk … have this megaphone," he said. "It’s like an open mic.”
It all boils down to impulse control. When you’re the face of a company, it’s vital to be your own filter and self-monitor communication, gestures and any other signals you could be sending to the public.
In many companies, there are two competing forces, Sonnenfeld said: one is the entrepreneur who founded the business, who prioritizes their individual freedom of speech, and the other is the corporate communications arm that puts out more “sanitized” investor relations material. What should fall in between is the voice of the CEO. But when that CEO is also the company’s founder, things can get dicey.
There are, however, unique benefits to taking social media into your own hands as a founder-CEO, said Sean Standberry, who is himself both CEO and co-founder of LYFE Marketing, an Atlanta-based social media management company. He said handling your own social media can mean forging unique relationships with consumers and curating a view of the company that goes beyond just the logo.
“In our world, it makes sense for CEOs and founders to be more vocal on social media,” Standberry said. “You have the opportunity to humanize your brand and make personal connections.”
It’s true, too, that nowadays many people expect business leaders to speak out about prominent social, political and global issues -- and when it comes to their bottom lines, doing so can be better than staying silent. For example, in the wake of the Parkland, Fla., high school shooting in February, Edward Stack, CEO of Dick’s Sporting Goods, announced the company would no longer sell assault-style rifles or high-capacity magazines at any of its subsidiaries -- along with barring sales of firearms to anyone under the age of 21. The company was lauded on social media for the decision.
The most successful CEOs, Monarth said, are the ones who are accessible. Two current examples in the business world are T-Mobile CEO John Legere and Airbnb CEO Brian Chesky, who are both known for opening up direct lines of communication with their customers.
The flip side is when a founder and CEO begins to reveal too many unnecessary details about a company’s struggles that may turn people off. “I don’t think there should ever be an opportunity where just one person can control … exactly whatever they want to do, whatever they want to say,” Standberry said.
So what’s the solution? Experts seem to agree that founder-CEOs can speak freely on social media when it comes to industry patterns, economic trends and even social issues -- as long as they’re speaking for themselves.
But when it comes to incendiary statements that create acrimony for a company -- such as Truaxe’s months of online jabs -- there should be potential consequences from a company board’s audit committee, Sonnenfeld said.
Oversight may be even more vital in another instance: sharing company performance news without oversight. It’s why Musk himself was so widely reprimanded for his infamous “funding secured” tweet. Legally, when certain information on a public company is disseminated -- such as an official financial disclosure -- it must be truthful (read: not speculation) and shared promptly with all relevant parties. The board’s audit committee must be made aware of the statement in advance, the outside auditor should have agreed with the numbers and the general counsel and investor relations team should have signed off on phrasing and language.
“At that level, you have to think through that your words can affect people’s lives and stock prices,” Monarth said. “You think out loud about something, and all of a sudden people jump on it and they act on it.”
In an ideal world, companies would hire someone to train a founder-CEO on social media policies, Standberry said -- and a potentially high-stakes post wouldn’t go out without multiple people reviewing it beforehand. Social media policies could come in the form of clear guidelines -- and just as clearly laid-out sanctions for if and when those guidelines are violated.
“Boards should have a strong policy: You can speak about anything you want, but when it comes to being the voice of the company, you don’t have that freedom of speech,” Sonnenfeld said.
If accessibility to customers is widely seen as a vital component of success, how can a founder-CEO maintain that while also bowing to oversight? It’s important not to act solely fueled by emotion -- instead, leaders should take a step back before posting a thought, run it by an adviser or another trusted colleague and turn on their mental filters.
People inherently look to leaders in society -- whether in business, entertainment or politics -- for direction, and there’s a certain responsibility that comes along with that.
“We look to our leaders,” Monarth said, “to remove some of the anxiety and uncertainty about what’s around the corner.”Related: Do Good Entrepreneurs Make Good CEOs?