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The week the CEOs got smacked

As highlighted this week with platitudes from the departing chief executives of WeWork, eBay and Volkswagen, idealism and high-mindedness does not protect companies from the harsh realities of running a business

By David Gelles
Published: Sep 30, 2019

The week the CEOs got smackedAdam Neumann, WeWork's chief executive, alongside his sister, Adi, onstage at the "2018 Creator Awards at Madison Square Garden in New York, Jan. 17, 2018. (Cole Wilson/The New York Times)

One wanted to “elevate the world’s consciousness.”

Another aspired to “make a bigger difference around the world.”

A third, speaking of climate change, said, “We owe it to our children to find the right answers.”

This soaring rhetoric did not emanate from motivational speakers or religious leaders. It was uttered by wealthy chief executives hoping to curry favor with a public desperate to be inspired.

Ultimately, their idealism counted for little. Over the past week, the three men behind these lofty sentiments discovered that high-mindedness didn’t protect them from the harsh realities of running a business.

Adam Neumann stepped down as chief executive of WeWork after a botched attempt to take the company public. Devin Wenig left his role as chief of eBay after the company’s board grew impatient with poor performance. And Herbert Diess, the chief executive of Volkswagen, was charged with stock market manipulation and misleading investors. Diess remains in his job, but all week, smartphone push alerts seemed to ping with the news of executive heads rolling.

Those three executives joined the recently departed chiefs of Juul, Nissan, comScore Inc. and HSBC as reminders that at the end of the trading day, corporate chieftains are there to make shareholders money.

That seemingly rudimentary premise — that chief executives are responsible for delivering strong financial returns — has been easy to overlook in recent years. As the business world has engaged more in social and political debates, some CEOs have come to believe that it is no longer enough to simply run a profit and loss statement. Instead, they are trying to inspire employees, combat climate change and take stands on moral issues, too.

“We’re in a world where we need leaders to improve the state of the world, not just the state of the bottom line,” Marc Benioff, the co-chief executive of Salesforce, said in an interview. “Every CEO has this on their mind right now.”

Benioff was at the vanguard of this shift. In 2015, Salesforce was among the most vocal of the companies protesting a proposed Indiana law that he and other opponents said would permit discrimination against gay people. Since then, brands have begun taking stands more often. Soon after President Donald Trump took office, Google, Microsoft and others protested his immigration policies. That summer, a group of chief executives who had agreed to advise the president disbanded their councils after Trump blamed “many sides” for the white supremacist violence in Charlottesville, Virginia.

Last month, the Business Roundtable, a group of influential chief executives, sought to redefine the role of business in society. And after a series of mass shootings, Walmart stepped into the national gun debate by limiting ammunition sales and calling on Congress to increase background checks.

“Companies, and by extension their management teams and their CEOs, have a moral obligation to try to be a force for good,” Dan Schulman, the chief executive of PayPal, recently said. “I don’t think there’s any way that we can shirk that responsibility, and I don’t think there’s any way to fully stand away from the culture wars around us.”

There’s a catch, of course. Before CEOs can change the world, they need to satisfy investors. “You have to deliver performance in your business,” Benioff said. “That’s table stakes.”

That’s been easier to do of late. With the stock markets up sharply in recent years and venture capital flowing freely, some companies with mediocre — or even dismal — performance have been able to get by with little more than a good narrative.

But today, as the stock market wobbles and steeply valued startups face discerning public investors for the first time, not every company with an inspirational story is standing up to scrutiny.

Neumann found that out swiftly, when WeWork’s IPO discussions with investors indicated the company might be valued at just $15 billion — a staggering erasure of value since January, when the coworking venture was said to be worth $47 billion. WeWork, known formally as the We Co., became something of a laughingstock in investing circles after issuing a prospectus that began, “We dedicate this to the energy of we — greater than any one of us, but inside all of us.”

Scott Galloway, a marketing professor at New York University, said, “People’s radar for yoga babble is on high alert right now.”

And what is yoga babble? “It’s as if my yoga instructor went into investor relations,” Galloway said.

Focus on the Mission, Not the $196 Million Loss
Another company that is testing the public market’s appetite for aspirational rhetoric and nonexistent profits is Peloton, which makes an internet-connected exercise bike and other gear.

Peloton bills itself as “an innovation company transforming the lives of people around the world.” The hope is that investors will focus more on that mission statement and less on the fact that it lost $196 million in the last full year.

So far, it’s not working. Peloton started trading Thursday and promptly fell 11 percent. Wall Street, it seems, is becoming less susceptible to the tech industry’s reality distortion field.

“Peloton is talking about delivering happiness and connecting people,” Galloway said. “No, you sell exercise equipment.”

But Peloton is hardly alone. Many of the most prominent technology companies today position themselves not so much as best-in-class operators in their category but as virtual revolutions unto themselves.

Dropbox, an online storage company, says its mission is to “unleash the world’s creative energy by designing a more enlightened way of working.” Lyft, the ride-sharing app, says it aims to “improve people’s lives with the world’s best transportation.” Uber claims to “ignite opportunity by setting the world in motion.”

Spotify says it aims to “unlock the potential of human creativity.” Not to be outdone, Snap says that its social media app will “improve the way people live and communicate.”

Since going public over the past two years, the stock in all five of those companies has plummeted.

“Companies need a mission statement that is concrete enough to describe what they will do, as well as what they won’t do,” said Brad Smith, Microsoft’s president and chief legal officer. “If you promise too much, you risk having something that’s meaningless.”

The fact that utopian mission statements are now so commonplace stems, at least in part, from the fact that company founders are lionized, no matter their antics.

A generation ago, many founders were regarded as brilliant if crazy savants — product geniuses who weren’t to be trusted with operating a real company. The prevailing wisdom was that once a company was mature or went public, a seasoned executive should be brought in to run the show.

That changed after the success of companies like Google, Facebook and Amazon, all of which had founders who managed to turn their creations into world-eating behemoths. Now, tech-company founders are practically untouchable.

“Founders are now assigned this Christ-like association,” Galloway said. He added that this was not just a question of perception — tech founders often possess powerful voting rights that secure their control of the companies. “They’re given way too much rope to hang themselves and everyone around them.”

Witness Uber, Theranos and WeWork. Their charismatic founders raised billions of dollars and won over A-list investors before crumbling under pressure.

This shouldn’t have been hard to predict. Although several big tech companies have been similarly idealistic — think Google (“Don’t be evil”) and Facebook (“Make the world more open and connected”) — they are also wildly profitable.

When, on the other hand, aspirational rhetoric is paired with middling financial performance, there is rarely a happy ending.

The online marketplace Etsy went public in 2015. A quirky company from the outset, Etsy was helmed by Chad Dickerson, a beloved leader who prioritized generous employee benefits and earned the company B-Corp status, signifying a high level of social and environmental responsibility.

“I thought a lot about what, in addition to building shareholder value, a company can contribute to the world,” Dickerson said.

He didn’t have long to ruminate on such matters. Once Etsy was public, its stock started to fall. Soon, private equity firms were circling and activist investors were agitating for change. The Etsy board, which had been supportive of Dickerson’s agenda until then, reversed course, and he was unceremoniously fired.

“It’s not Milton Friedman’s 1970s shareholder value world anymore,” Dickerson said. “Except when it is.”

‘The Market Is Prone to Fits of Sanity’

Last year, Nike made Colin Kaepernick the face of its Just Do It 30th anniversary campaign. “Believe in something. Even if it means sacrificing everything,” the ad read.

Kaepernick, the former NFL quarterback who became a social justice star for kneeling during the national anthem to protest police brutality, was a risky choice. Some customers called for a boycott and burned their shoes. Trump went after the company on Twitter, writing, “What was Nike thinking?” In the days after Nike unveiled its partnership with Kaepernick, the stock fell, losing $3.3 billion in market value.

For a moment, it looked as if Nike had made a real sacrifice, putting its values on the line and paying for it with real money.

Yet after the initial furor died down, the stock rebounded. Online sales at Nike jumped 31 percent in the days after the Kaepernick ad debuted. Analysts upgraded the stock, which reached new highs.

It turns out Nike hadn’t sacrificed anything. One of the great marketers of the past 50 years, the company clearly knew what it was doing. Signing Kaepernick was a marketing tactic, and in the year since, it has done virtually nothing more with the star.

“There’s a great risk of this type of language being employed in a cyclical and opportunistic way,” Dickerson said. “I worry that these displays of conviction might actually be a lack of conviction, that it’s actually just based on market analytics.”

Sometimes efforts to support a higher purpose fail doubly, coming off as both opportunistic and ham-handed.

Johnson & Johnson introduced a Listerine mouthwash bottle sheathed in a rainbow flag to celebrate gay pride, drawing ridicule from the LGBTQ community. Starbucks has clumsily waded into race relations more than once.

McDonald’s turned its golden arches logo upside down for International Women’s Day last year, “in honor of the extraordinary accomplishments of women everywhere and especially in our restaurants.” Online critics pounced, saying that if the fast food chain valued women so much, it should give them better pay and benefits.

“All of these companies finding their woke values is not a function of their principles,” Galloway said. “It’s a function of shareholder value.”

And then there are the companies that have decided that it is better to say nothing at all.

Blackstone, the private equity firm, did not sign on to the Business Roundtable statement.

Indra Nooyi, the former chief executive of PepsiCo, said she was willing to engage in third-rail debates only if they were relevant to the company’s broader mission. “Not all companies need to speak up about everything,” she said. “If the lofty rhetoric is not linked inextricably to the core business, you should question it.”

And Visa, the credit card processor, has assiduously stayed out of the social debates roiling the business world. “Our job is not to be dividing the country,” Al Kelly, Visa’s chief executive, said recently in an interview. “Our job is not to lecture people about what to do or what to buy. And the minute you give on guns, then what about soda? What about fur coats? What about birth control pills? What about? What about? What about?”

Kelly has reason to be worried. After all, when CEOs do push for real, meaningful change, the judgment can be swift and harsh.

In 2015, David Crane was chief executive of NRG, one of the country’s largest power producers — and one of its largest polluters. Crane believed that NRG had a moral and business imperative to transition to renewable sources of power generation.

His vision for a clean energy company made Crane the talk of the industry and animated idealistic employees. But when Crane asked the board to endorse a plan for NRG to be carbon neutral by 2040, they balked. One board member took him aside and said: “Are you crazy? You can’t say that.”

That director was right. When it became clear to investors that Crane was serious about his plans, NRG stock started to fall, and Crane was out.

In the end, it didn’t matter that Crane believed he was on the right side of history or that his staff was behind him. “The fact that employees liked it was overwhelmed by the fact that the board didn’t like it and investors didn’t care,” he said. (Crane, though, may have simply been ahead of his time. Since he lost his job, the cost of renewable energy has continued to decline, and several large utilities have pledged to become carbon neutral.)

Dickerson can relate. For all his efforts building Etsy’s culture and advancing environmental causes, his investors just weren’t that interested.

“At the end of the day, it’s still mostly about stock price if you’re a public company CEO,” Dickerson said. “When the rubber meets the road and you’re sitting in the room with investors, they are looking at spreadsheets and asking you about what the numbers are going to look like.”

It is a lesson that many startups are just starting to learn. WeWork, Uber, Lyft, Spotify, Snap and Dropbox all had high hopes of becoming public market darlings. Instead, they’ve become dogs.

To some, the weak public appetite for idealistic, money-losing companies is a failure of imagination. Even on his way out, Neumann, who will keep a position as nonexecutive chairman, said his belief in the transformative power of WeWork had never been more intense.

“We have an opportunity to expand our global business to more people than ever before,” he said. “I have never believed in our business, our people and our future more.”

For others, however, the tepid response from public investors is a refreshing sign of good judgment.

“The market is prone to fits of sanity,” Galloway said. “We’re having that right now.”

©2019 New York Times News Service

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