If someone predicted three years ago that Wells Fargo and Theranos would be implicated in extensive wrongdoing, they might’ve been dismissed as a loon. But here we are: Shoes keep dropping with regard to Wells’ widespread dishonesty, and the SEC last week characterized Theranos as a “massive fraud.” Though in different industries, both companies had one thing in common: They and their CEOs were once lionized by Wall Street and the media.
Betting against Wall Street and media darlings could be a lucrative investment strategy. The CEOs of Enron, Worldcom, Washington Mutual, Lehman Brothers, Bear Stearns and AIG all held favorable stints on magazine covers, only to find themselves in jail or forced out in disgrace. History teaches us that we should be on the lookout for the next celebrated company most likely to blow up. All indications are it’s Facebook.
Facebook’s stock has plummeted in the wake of a Saturday New York Times story detailing how the company failed to disclose a serious data breach the Trump campaign attempted to exploit. While the Times offered no evidence the data was successfully utilized, facts no longer matter. Many Times readers now believe that Facebook contributed to President Trump’s election. According to the story’s most recommended reader comment: “Facebook is evil.”
The Times’ liberal readers are late to the Facebook opposition table. Conservative publications for months have been sounding the drumbeat that the company should be busted up because its clumsy attempts to regulate what constitutes “fake news” favored liberal viewpoints. Breitbart, independent of the Times’ story, Sunday published a commentary advocating for a Roosevelt-style breakup of the social media titan.
Compounding matters was the disclosure on Monday that Facebook allowed the Obama campaign preferential treatment harvesting data because they were told the company “was on our side.” Trump and Obama are respectively the most hated Presidents of the left and the right and Facebook has been implicated in helping elect both. That’s made the company a major political target: Republican and Democratic leaders have summoned tech industry leaders to appear before Congress to account for how they protect consumer data.
Facebook’s decision to deemphasize news stories in its feeds has alienated its biggest cheerleader: the mainstream media. The decision has taken a toll on the media’s eyeball captures, and one publication has already gone out of business. Underscoring the media’s anger, NBC News head Andrew Lack reportedly called the social media giant “Fakebook” at a recent meeting. (How ironic, given that NBC’s Twitter account is managed by a third party).
Some of Facebook’s employees have sounded the alarm about Facebook’s supposed evils and have formed a coalition to eradicate the social media cancer they helped build. Facebook investor Sean Parker has warned, “God only knows what it’s doing to our kid’s brains.”
Perhaps most damaging of all is Proctor & Gamble’s recent disclosure that the company slashed $200 million from its digital ad spend last year because the consumer products giant found the ads wasteful. For all of Facebook’s lofty claims about its user data, the world’s biggest marketer didn’t find it all that useful.
Facebook’s troubles may be likened in magnitude to the crisis Johnson & Johnson faced when its Tylenol brand was tampered with. But CEO Mark Zuckerberg is no James Burke, the J&J CEO whose handling of the crisis is now legendary. Nor can Zuckerberg rely on COO Sheryl Sandberg, who seemingly is always more focused on promoting herself than Facebook. The Times reported late yesterday that Facebook routinely conducts polls to track the images of Zuckerberg and Sandberg. Tavis McGinn, the executive who oversaw the company’s “executive reputation” function, resigned because he was disillusioned with Facebook’s conduct.
When confronted by the Times for failing to disclose the data breach, Zuckerberg and Sandberg hid behind company lawyer Paul Grewal, who incredulously declared, “protecting people’s information is at the heart of everything we do.” Facebook investors better hope that Grewal is better at practicing law than crisis communications.
Facebook’s business is predicated on creating a virtual world where people “like” each other. Unfortunately, in the real world, people will increasingly come to appreciate that Facebook is a fundamentally immoral company whose business is to exploit its trusting users. It will survive in some crippled form, but Zuckerberg and Sandberg are about to learn another historical lesson: The media invariably turns on the heroes it manufactures.
Eric Starkman, a former financial journalist with major newspapers in the U.S. and Canada, managed an eponymous PR and crisis communications firm for more than 20 years. He is currently writing a television pilot based on his professional and personal experiences living in NYC.