Déjà Vu: Facebook's Questionable Stock Hijinks Feels Like Winklevii 2.0
Many years ago, before Google went public, I had an unusual late-night conversation in the lobby of the TED conference with its co-founder Larry Page about the prospect, about which–despite its inevitability–he had more than a little nervousness.
That would be: Taking the search company public.
After much ruminating, Page concluded that one of the more important reasons he felt compelled to have an IPO was to finally reward Google’s employees for all the work they had done to build the company.
While I have never had a similar chat with Facebook CEO Mark Zuckerberg about the powerful social networking company and an initial public offering, I suspect that he would not express any such sentiment.
And it’s not because Zuckerberg does not value his staffers any less than Page did–instead, it’s because he seems to value his privacy most of all.
I know–ironic!–given how many perceive the company to be cavalier about important issues related to disclosures of personal information uploaded to Facebook by the mountain-load daily by its hundreds of millions of users.
That aside, Zuckerberg’s clear intent to keep the lid on Facebook tight–with no information about the details of financial performance and other pertinent information a public offering would require be disclosed–is clearly about to become a nettlesome issue for the company.
While that effort at preserving secrecy by staying private has resulted in little more than cute Silicon Valley media guessing games about a possible IPO, its most recent machinations are too clever by a half.
That would be the new and giant investment from Goldman Sachs, as well as a deal to get $1.5 billion of pre-IPO shares in the hands of the investment bank’s rich customers.
Aside from the appalling image that only the very wealthy can get an early shot at Facebook shares, which instantly became a press meme yesterday after the Goldman deal was announced, pretending this single investment entity–called a “special purpose vehicle”–simply feels like a Wall Street trick.
Plus, a special purpose vehicle sounds like a car that bankers use to take people for a ride.
Thus, a gaggle of rich doctors in New Jersey are treated like one blob, instead of what is plainly true to all. As the old Latin legal phrase goes: Res ipsa loquitur (the thing speaks for itself).
Of course, this strategic move is designed to keep the number of primary stockholders under 500, which is the IPO tipping point for the Securities and Exchange Commission.
Therefore, by all means, let’s do it!
Or not, because I had an intense déjà vu about all this, and an unease that it felt vaguely familiar as a negative characteristic of Zuckerberg’s leadership that seems to cling to him.
That would be the dicey origins of Facebook, which remain a controversy to this day, including garnering an entire Hollywood movie on the subject.
Anyone with a passing knowledge of Facebook’s history knows the basic question: Did Mark Zuckerberg “steal” the idea for Facebook from the Winklevoss twins, as well as sandbag their efforts, while they were all students at Harvard University?
And, more to the point, was it illegal?
The Winklevii certainly think so, continuing in their Don Quixote quest to take Zuckerberg down in a series of ever-more-comical lawsuits.
For me, the answer is a lot more complex–I think Zuckerberg most definitely screwed with the Olympic rowing twins and it was very creepy that he did.
But, in terms of breaking the law, not so much.
Of course, if you are endeavoring to always act with ethics in your career, this should not be the bar set. But in practical terms, it was most definitely an aggressive knee-capping that is not uncommon in business.
Zuckerberg has shown similar tendencies many times since then, especially around the thorny issues of privacy, where fast-and-loose behaviors are quickly followed by the I’m-sorry-I-didn’t-mean-it excuses.
Okay, fine, I get it. Business is war.
But, as it moves into a more mature place, the question now is whether Facebook should keep stressing this kind of wink-wink-nudge-nudge propensity, because it feels–how can I say this in the nicest way–icky.
Plus it will surely attract unneeded attention from the SEC, which is already looking into the opaque market for trading shares of closely held companies and where Facebook is the star attraction.
And this is to say nothing of other issues–for example, could there be insider trading problems around the buying and selling of these private shares, as one person close to the situation has noted to me?
Facebook, of course, will defend what it is doing as above board, say it’s not unfair to give special access to its bounty to the very rich in what is essentially a private IPO and wag a finger at critics like me and tell us we don’t understand sophisticated financial issues.
But here’s what I grok without a Harvard Business School degree: It feels sneaky, it feels elite, it feels opaque, and this kind of fancy financing footwork could end in tears.
Because these legitimate questions on how Facebook handles its stock will continue to dog the company until–when he is good and ready (and finances at Facebook look prettier)–Zuckerberg eventually pulls the trigger on an IPO.
It would be nice, even if Wall Street applauds his cleverness, if he didn’t keep shooting himself in the foot along the way.