“Without question, Sam Bankman-Fried is a genius,” Yale School of Management leadership guru Jeffrey Sonnenfeld said in an interview on CNBC’s “Taking Stock” Thursday. “But what’s difficult is that somebody has to be able to hold them back and ask them questions. But when they’re developing one of these emperor models for life … then you really don’t have a responsibility,” Sonnenfeld said. Few would doubt the genius of Elon Musk or Mark Zuckerberg, but few would put them in the same category as many companies that have failed spectacularly, though Sonnenfeld says they share the bond of being allowed to operate without enough corporate oversight. “It’s not crazy to talk about Theranos or WeWork or Groupon or MySpace or WebMD or Naptster — so many companies that fall off the cliff because they didn’t have the right governance, they didn’t understand, how do you get the best genius? Sonnenfeld said. In the case of Bankman-Fried, who stepped down as CEO at FTX as the company filed for Chapter 11 bankruptcy on Friday, Sonnenfeld pointed to the lack of a board that should be asking tough questions. Tom Williams | CQ-Roll Call, Inc. | Getty Images But boards often can’t handle genius, Sonnenfeld said. Zuckerberg is another example. When Meta, formerly Facebook, announced it would shift its focus to the metaverse last year, Sonnenfeld said his board members were essentially powerless. Meta laid off 11,000 employees this week and announced a hiring freeze as it faced declining revenue and increased spending on a metaverse bet that Zuckerberg said may not pay off for a decade. Tesla shares have not been immune to Musk’s takeover of Twitter, with the stock plummeting this week after Musk told Twitter employees on Thursday that he was selling Tesla shares to “save” the social network. A Wall Street analyst has decided that Twitter is now a business risk for Tesla and has pulled the stock from a top pick list. Musk (though not Tesla’s founder) and Zuckerberg oversaw the creation of two-trillion-dollar companies, though both have now lost that market capitalization status due to falling stocks caused by a variety of factors—from macroeconomic conditions to industry risks, a valuation reset market for high-growth companies, and leadership decisions. Market research shows that founders can be a financial risk to the value of the company over time. Founder-led companies were found to outperform non-founder leaders at the start of the year, according to a study by the Harvard Business Review that looked at the financial performance of more than 2,000 public companies, but virtually no difference emerged three years on. after the IPO. After that time, the study found that founder-CEOs “actually begin to devalue the company.” Major players in Elon Musk’s Twitter deal, including Fidelity Investments, Brookfield Asset Management and former Twitter CEO and co-founder Jack Dorsey, did not take a seat on the company’s board or have a voice throughout the deal. transaction, said Sonnenfeld, who gave the deal. no supervision. Musk now splits his time between six separate companies: Tesla, SpaceX, SolarCity/Tesla Energy, Twitter, Neuralink and The Boring Company. Companies led by lone geniuses primarily need strong governance. Sonnenfeld says having built-in checks and balances and a board that has field expertise as well as the ability to watch for mission creep is critical to allowing these businesses to operate with less risk of costly errors. The Tesla and Meta governance scores in the ESG rankings have long reflected this risk. That doesn’t mean the market doesn’t need geniuses. “Certainly, we’re better off with Elon Musk in this world than we are better off with Mark Zuckerberg,” Sonnenfeld said. “But they can’t be alone.” Through recent issues, these leaders who are not frowned upon have been critical of themselves. FTX’s Sam Bankman-Fried tweeted Thursday morning that he was “sorry,” admitting he “goofed” and “should have done better.” Zuckerberg said of the mass layoffs at Meta in a statement of equal apology and involuntary reinstatement of the governance issue, “I take full responsibility for this decision. I’m the founder and CEO, I’m responsible for the health of our company. for the our direction and to decide how we’re going to execute it, including things like that, and ultimately that was my appeal.” Musk tweeted: “Please note that Twitter will be doing a lot of dumb things in the coming months.” But either an apology or an admission from genius that they can also be dumb at times, Sonnenfeld says these leaders would be better off letting others do the criticizing — much earlier and much more often. “They need to be managed, they need to be guided and have a board that can help them get the best of themselves and not let them develop this imperial sense of invincibility,” he said.
