Brian Kenny: Here's a hypothetical for you. Imagine you're sitting at your favorite coffee shop when a teenager pulls up a chair and asks you to share a bunch of personal information. He wants to know your birthday, what kind of food you like, where you go on vacation, who you voted for, who you hang around with. He promises he won't share that information with anyone. Really? Would you trust him? Well, 2.3 billion Facebook users around the world do, but one thing we know about trust is that it's hard to earn and even harder to keep. According to the 2019 Edelman Trust Barometer, the public's trust in traditional media is at its highest point in the past decade at 66 percent. But trust in social media platforms languishes at around 43 percent, and in this era of fake news, fixed elections and fraudulent data, regaining the public trust may be harder than ever.
Today we'll hear from Professor Bill George about his case entitled, Facebook Confronts a Crisis of Trust. I'm your host, Brian Kenny, and you're listening to Cold Call. Bill George is an expert on leadership, a topic that he teaches and writes about extensively, including numerous books, articles, and business cases. He's also the former chairman and chief executive officer of Medtronic. Bill, welcome.
Bill George: Thank you. Good to be here.
Kenny: I really appreciate you taking the time to talk about this case and we're happy to have you today because you just taught the case this week. I'm sure we'll hear some of the insights and observations that you have from discussing it with students, but maybe you could start just by telling us what led you to write this case.
George: Well, the Guardian last year broke the story on Facebook being invaded by Cambridge Analytica and user data being compromised. At that time we were preparing for a program with a group of CEOs, about 60, that came here in June. I wanted to prepare a case to help kick off that one-day session. This seemed like one that was something that everyone should be interested in, how you protect data. There's been so much talk about cybersecurity and breach and also, people are making a lot of money on use of information. So it became a very hot topic and that's why I wrote the case.
Kenny: Do you use Facebook?
George: I do. I have about 30,000 followers on Facebook. I find the best site for me is LinkedIn because everyone discloses who they are in terms of their educational background and their companies and the fact that they are there more to talk about leadership because they want to advance their own leadership.
Kenny: We're all using one platform and another and we're all giving away a lot of information about ourselves every day it seems in different ways. Facebook becomes an example, good, bad or indifferent, about what people can learn about their responsibility as business leaders.
"Why would you go into hiding just at the time when everyone wants to hear from you?"
George: I led off the class yesterday asking the question, "If they've got over 2 billion users, how many of those users know this information is being used and being sold?" As we show in the case they’re being profiled right down to minutiae. They can pretty much identify who you are.
Kenny: Let's go back to the beginning of the case. What was sort of the pivotal moment that you lead off with in the case?
George: What really struck me about this, and that I really wanted to ask students about, is that Mark Zuckerberg is a very public figure. He's in every newspaper, every day. TV shows, media. He wants to be that public figure. All of a sudden he gets perhaps the greatest challenge he's ever faced in the media and he disappears for five days. Well, first of all, I've taught a lot. I wrote a book called Seven Lessons for Leading a Crisis. If you're a leader and you're in crisis, you go out right away. Instantly. Howard Schultz did this along with Kevin Johnson at Starbucks when they had the incident in Philadelphia; two African American men being escorted from the store. He flew out there that same day. How could Mark disappear for five days? As did his partner, Sheryl Sandberg.
And it even got worse because on the fourth day there was a town hall [with Facebook employees], which he goes to every single month. It’s video streamed all around the world. He sent his deputy general counsel. I thought these things were odd. Why would you respond that way? Why would you go into hiding just at the time when everyone wants to hear from you? And why would you send your deputy general counsel?
Kenny: Even though he likes the limelight on his terms, he's been enigmatic as a leader. Let's remind people Facebook has only been around, I think they launched in 2006 to the public. So it's still a relatively young company and one that's experienced tremendous growth.
George: Well, it was spectacular. He started out as a dating site here at Harvard when he was a freshman and then he saw an opportunity to move to the West Coast to really expand Phenomenal success. There literally are millions of people who want to be the next Mark Zuckerberg. The financial success has been spectacular ; they've been able to grow this advertising model in ways that have exceeded anyone's expectation. And just think about it, there are 7.5 billion people on the planet and a third of them [have used]on Facebook? I mean, wow, this is crazy.
Kenny: What were some of the pivotal decisions that they made along the way?
George: In terms of building the business, they expanded and gave everyone free access. What people didn't know is that was in exchange for profiling the information. Now, in his defense, Mark wrote a defense recently in the Wall Street Journalin which he said, "We don't sell your information." That's actually true, but they profile you to the point where maybe they had some personality profile of the fact that you're deemed as neurotic or you're deemed as someone who's very aggressive and you get profiled that way so that advertisers can buy it. Advertisers love it. They've now got a very narrow slice. They know exactly the kind of customer they're looking at and they can go at them. Of course, this was subject then to other influences like the Russian influences, but I just felt that this goes way beyond Cambridge Analytica. What went through my mind … was, "This is not about Cambridge Analytica, this is about the heart of Facebook's business model." That's the only reason you would go into hiding for five days. He didn't have an answer to that one.
Kenny: What are some of the problems are with the business model?
George: That [some amount of] of the two-plus billion people don't know they're being profiled… They're sharing very, very personal information and maybe you don't want that information profiled about yourself and yet people are doing it. That's the concern. Even if advertisers love it, and if that’s the model, shouldn't everyone explicitly know about it?
Kenny: It's a real lack of transparency.
George: When I was writing the case I was in Europe, and the European regulations, GDPR General Data Protection Regulations, came out. You had to approve Google and Facebook if you wanted to use the sites. The Europeans moved way ahead on regulation because they sensed this problem.
Kenny: It seems like the US is starting to move in that direction, and this Facebook incident may have been the catalyst that moves the US down this path more quickly than they would have otherwise.
George: I absolutely think so. We tend not to like regulations here, but I thought what was particularly interesting, and that I feature tin the case, is that Tim Cook, the CEO of Apple, coming out and saying, "This is wrong." He actually said, "Privacy is a human right." I had the opportunity of meeting with him in a small group in June … and he was very clear, very passionate about it, "We have all kinds of information from iPhones about you. We would never look at it. And anyone who does look at it is terminated." So a whole different point of view that Apple has. Now, you could argue Apple is selling a product but the only product that Facebook has is its site. I would argue that the only product Apple has is trust, and if that trust is breached… So that's why we called it Facebook Confronts a Crisis of Trust, because if you lose that trust you don't have anything.
Kenny: There are other companies with similar business models. If you look at Google, if you look at Amazon, they both have mounds and mounds of data about their customers, their users. They haven't found themselves in the same kind of situation.
George: Two things. We had Google people in the classroom yesterday and Amazon. First of all, I buy a lot of books on Amazon; they help curate the kind of books I might like, I actually like that service. And if I'm looking online at a retailer for a particular shirt, I don't mind them sending me ads for shirts. That's very, very different than when I'm looking for a therapist or my child is very ill. Do I want my employer to know all these things? That to me is in a whole different class of information.
Kenny: Let's talk a little bit about Facebook's leadership model. You've got Mark Zuckerberg, the founder and CEO. He's got Sheryl Sandberg. They're probably the two most public figures in the company. Who else is watching the store, as it were?
George: Mark has absolute power. He has over 50 percent of the voting shares and you remember Lord Acton said, "Power corrupts. Absolute power corrupts absolutely." And I think he has been caught up in something called hubris. Very hard to define what that word means, but I think he got caught up in his own success and his own power and so he's not really listening to other people. I had written in a book three-and-a-half-years ago that I thought he was listening to people like Don Graham of the Washington Post, but I think he shut out a lot of those voices and is going off in his own way. And I think Facebook grew too fast. A little bit like Frankenstein's monster grew out of control… I think he feels trapped, but I don't think he's really listening. It's been said by board members at Facebook, former board members, that normally the board is the boss. They're in charge. That's what we teach here at Harvard Business School. But in this case, the board is an advisor because if Mark doesn't want to do it there's nothing the board can do. They can take a vote. It doesn't mean anything because he controls over half the voting shares. He has two class of voting stock. So there are questions being raised about that.
Kenny: We've talked in the past … about crucible moments, which was one of the ideas that you've written about. Is this kind of a crucible moment for Mark Zuckerberg?
George: Huge. It's his biggest crucible. He's probably never experienced one like this before. [His career until now] has been up, up and away, and here he is, in his early 30s, all of a sudden confronting something. And the question is, when will he acknowledge that he didn't handle this well? That's the question. A crucible is something you can't get through until you acknowledge your own culpability. If you fire me from my job, I have to look myself in the mirror and ask, "What role did I have in getting fired?" In a CNN interview that I showed in class, Mark puts all the blame at the hands of Aleksandr Kogan, a Russian living in England, who did the invasion on behalf of Cambridge Analytica. And I just think that's wrong. I think if you’re a leader, you have to take responsibility for everything that happens.
Kenny: What kind of effect is this having on other people at Facebook?. We know this is a generation of people and millennials that want to belong to something, belong to a company that has meaning and purpose. They probably felt like that when they signed on with Facebook. Does this affect them in some way?
George: Yes, absolutely. He's lost some very visible figures, because you're right, they were following the mission, the passion that Mark had, "Let's connect everyone in the world." That's a valid mission, but if that mission turns into almost a cult-like thing, it's very, very dangerous. I think maybe they haven't done that, but they're on the verge of it unless they pull back and they probably have to stop chasing stock price and shareholder value. Maybe they shouldn't have as many users. Maybe they have to expunge a lot of those users and clean up their site a lot more.
Kenny: You review that decision to go public. Was that a mistake? Is that driving some of the behavior we're seeing?
George: I teach governance and serve on many corporate boards, and I can tell you that once you make the decision to go from a wholly-owned private company to go public, you're getting public money, you're getting investor money, pension fund money, hedge fund, you're getting all kinds of public money. You have an obligation to those investors and it's not up to you just do what you want to do. You have a deep obligation that goes far beyond that.
Kenny: Let's assume that Facebook does want to regain trust. Are there examples of other companies—I'm thinking of Volkswagen and what they went through a couple of years ago with the lies about emissions testing— other companies that have been able to overcome something like this?
George: Volkswagen hasn't fully overcome it. One of my students worked for Volkswagen and said [it paid] $27 billion dollars in fines. Billion. That's a lot of money. I remember the CEO of Volkswagen US testifying in front of Congress that no one knew anything about this, it was just two rogue engineers. That's simply not true. Everyone knew about these violations to the emissions test. So if you do the wrong thing you better acknowledge it because the cover-up is going to hurt you a lot more, and you're going to lose the trust of the public. It's hurt Volkswagen sales tremendously. If you're not upfront about these issues, it's going to hurt you greatly. General Motors is a good example of one that went the other way [in a problem with faulty ignition switches.] (CEO) Mary Barra takes over. She said, "It's not only a problem we have with safety, which we're going to correct, but we've got a cultural problem and we've got to correct it," And she has. Here we are, five years after she took over. She has changed that place dramatically and now they're getting great results because of leadership.
I think it's time for Mark Zuckerberg and Sheryl Sandberg to step up to leadership. Industries do not do a good job of self-regulation, so we have regulatory bodies. We don’t let pharma regulate itself. They have to get FDA approval on every product. That’s a good thing. It protects the public, just like Medtronic had to get FDA approval on every product that helps protect the public. I think it's time to have a regulation, a sound regulation, about use of [personal] information. The problem is that the field is moving much faster than regulators can figure out what to do. With artificial intelligence, these issues are going to mushroom by several orders of magnitude and be much more serious. If these big companies want to keep going they need to act in a very responsible manner.
"I think he got caught up in his own success and his own power and so he's not really listening to other people."
Kenny: It seems like you need to have some balance of regulation but also some independence for business so they can continue to thrive.
George: Exactly.
Kenny: Consumers, by the way, have a vote in this. Nobody's forced to be on Facebook. And a lot of people did jump off after they started hearing about this issue. But over time these things seem to recede a little bit until they rear their heads again. You discussed it in class yesterday.
George: Yes.
Kenny: I assume probably everybody in that class has been on Facebook at some time or another? What were the themes that emerged in the discussion?
George: Some people were very angry about what they felt was invasion of their privacy. Others advocated for regulation. Others don't like regulation, but acknowledged it had to take place. And some of them were generally perplexed how somebody as successful as Mark Zuckerberg could fail to step up and lead in such a crisis. We talked about that in depth and we were able to compare and contrast the leaders in some of these other high tech companies and why they've had different outcomes. We talked to a much broader basis about what is the public responsibility of corporations when they have that much power? Because in my experience, if corporations don't behave in a responsible manner, they’re not only inviting regulations, they're inviting monopolization, breakup and antitrust suits. And a lot of other things. We talked about the addiction factor, particularly for children. I see this in my own grandchildren. They want to be on those devices all the time, and what are the impacts? And we're just starting to study this so it's come on so fast.
But on the other hand, I'm a huge believer in social media. I have a total 180,000 people that I can connect with with a push of a couple of buttons. I love to do that. I love sharing my leadership ideas and what I think is important to be a good leader.
Kenny: You mentioned the GM situation and how that's been turned around. Fundamentally, it turned around because a new leader came in and was able to change the culture. Is that the only option that Facebook has? Is that the best option for Facebook?
George: That's a really good question. Are you going to have to have new leadership there? They certainly need a much stronger board. They need a real board, not a group of advisors. I think they should open up their shareholding so that Mark doesn't have full power. I doubt he'll do that. If Mark doesn't step up to it, I think he's going to have to bring in someone to run the company. I thought Sheryl could do that, but she's faded into the background. I don't know why.
Kenny: Maybe there'll be a B case on this one that we can talk about next year.
George: Oh, I think there will be a lot of material for a B case, C case. It's an ongoing saga. It's not ending now. It's just getting started.
Kenny: Bill, thanks so much for joining us today.
George: Thank you for having me. It's a real pleasure.
Kenny: If you enjoy Cold Call, you should check out HBR After Hours a podcast featuring Harvard Business School faculty dishing on the latest happenings at the crossroads of business and culture. Find it on Apple podcasts or wherever you listen. Thanks again for listening. I'm your host, Brian Kenny, and you've been listening to Cold Call.