HBR Podcast: Can Mark Zuckerberg Rebuild Trust in Facebook?

Facebook CEO Mark Zuckerberg faced a “crucible moment,” a point in his life that would test him and potentially shape him as a leader, in March 2018 when it was discovered that Cambridge Analytica had accessed data from 87 million Facebook accounts. Harvard Business School professor, and former chairman and CEO of Medtronic, Bill George discusses his case, “Facebook Confronts a Crisis of Trust” — why Zuckerberg handled the crisis as he did, the importance of earning and keeping user trust, the role of companies in protecting privacy, and the pros and cons of regulation.

https://audio.hbr.org/cold-call/20190403085909-91_HowMarkZuckerbergCanOvercomeHisCrucibleMomentandRebuildTrustinFacebook.mp3

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TRANSCRIPT

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%. But trust in social media platforms languishes at around 43%, 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.

BRIAN KENNY: To talk about a case that is literally ripped from the headlines. Headlines even today about Facebook and those have been sort of going on it seems for at least a year now. Just they’re present all the time.

BILL GEORGE: They certainly are and this has continued right up to the present moment.

BRIAN 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.

BILL GEORGE: Well, the Guardian broke the story on Facebook being invaded by Cambridge Analytica and user data being compromised along with friends back in March. And at that time we were preparing for a program with a group of CEOs about 60 that came here in June and I wanted to prepare a case to help kickoff that one-day session. This seemed like one that was something that everyone should be interested in, and how do 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.

BRIAN KENNY: Do you use Facebook yourself, Bill?

BILL GEORGE: I do. I have about 30,000 followers on Facebook, actually, 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.

BRIAN 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. So I think this case is really timely as people are thinking about things like identity theft and leak of data and how their information is being used in different ways. So Facebook becomes front and center, an example, good or bad or indifferent about what people can learn about their responsibility as business leaders. And I think we’ll get into that more as the case goes on.

BILL 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?” They’re being profiled as we show in the case down right down to minutiae so that they can pretty much identify who you are.

BRIAN 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?

BILL GEORGE: Well, it was obviously, the Guardian story, but really struck me about this, and I really want to ask students about that is Mark Zuckerberg is a very public figure. He’s on 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, “Let’s get on an airplane and go out to Philadelphia.” And yet, how could Mark disappear for five days? As did his partner, Sheryl Sandberg. And it even got worse because on the fourth day he had a town hall, which he goes to every single month. This a worldwide town hall. So it’s video streamed all around the world. He sent his deputy general counsel and I thought these things were odd. So not having answers. I wonder why the case to get people really talking about as a leader, 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?

BRIAN KENNY: Those are all great points. And I think some of this gets back to the reputation that Mark Zuckerberg has had over the years. He’s been, 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. The case goes into some of the details of their growth over the years? Can you just recount some of that?

BILL 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 his … Phenomenal success. I think there literally are millions of people who want to be the next Mark Zuckerberg. And a lot of companies have been founded since then and it’s remarkable. The financial success has been spectacular and they’ve been able to grow this advertising model in ways that have exceeded anyone’s possible expectation. And just think about it, what are there, seven and a half billion people on the planet and they have a third of them on Facebook? I mean. Wow. This is crazy.

BRIAN KENNY: What were some of the pivotal decisions that they made along the way?

BILL 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, Mark in his defense, in fact, he wrote a defense recently in the Wall Street Journal in 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 him. Of course, this was subject then to other influences like the Russian influences, but I just felt like this goes way beyond Cambridge Analytica. It goes to the heart of his business model and what, of course, went through my mind when I was describing this is, “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.

BRIAN KENNY: What do you think some of the problems are with the business model?

BILL GEORGE: That people of the two plus billion people don’t know they’re being profiled. If you read all the details, one woman in class yesterday, “Well, I filled out all 12 pages of materials and read through all of this,” a lot of people are actually going to do that, particularly young people. They’re sharing all kinds of very personal information about personal relationships. It’s not like they’re going out and buying a new shirt or new coat. They’re sharing very, very personal information and maybe you don’t want that information profiled about yourself and yet people are doing it. And that’s the concern. Even if advertisers love it, is that the model, shouldn’t everyone explicitly know about that?

BRIAN KENNY: It’s a real lack of transparency.

BILL GEORGE: When I was writing the case, I was in Europe, in May, in Switzerland and the European regulations, GDPR General Data Protection Regulations came out and so we had to approve of all this that you people explicitly you had to approve. So I approved Google and you had to approve Facebook if you wanted to use the site. The Europeans moved way ahead on regulation because they sensed this problem.

BRIAN KENNY: It seems like the US is starting to move in that direction too, and this Facebook incident may have been the catalyst that moves the US down this path more quickly than they would have otherwise.

BILL GEORGE: Well, I absolutely think so. We tend not to like regulations here, but I thought what was particularly interesting and I feature that in the case is that Tim Cook, the CEO of Apple, came out and said, “This is wrong.” He actually said, “Privacy is a human right.” And I had the opportunity of meeting with him in a small group in June, sitting next to him, just like ten of us in the room. 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 they have. Now, you could argue Apple selling a product and the only product that Facebook has is its site. Back to where you started out, 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.

BRIAN KENNY: There are other companies that have sort of 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.

BILL GEORGE: Two things. We had Google people in the classroom yesterday and Amazon. First of all, if Amazon, I buy a lot of books on Amazon, if Amazon, there’re millions of books out there, they help curate the kind of books I might like, I actually like that service. And if I’m looking then back to my example, I’m looking online at a retailer for a particular shirt I don’t mind if they’re sending me ads for shirts because they know I’m in that business. That’s very, very different than I’m looking for a therapist or my child is very, very ill, or do I want my employer to know all these things that are going on? And that to me is in a whole different class of information.

BRIAN KENNY: Let’s talk a little bit about Facebook’s leadership model then. You’ve got Mark Zuckerberg, who is the founder and the CEO. He’s got Sheryl Sandberg. They’re probably the two most public figures in the company, but who else is kind of watching the store, as it were?

BILL GEORGE: Mark has absolute power. He has over 50% of the voting shares and you remember Lord Acton said, “Power corrupts. Absolute power corrupts absolutely.” And I think he has caught up in something called hubris. Very hard to define what that word means, but I think he got caught up in its 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. 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 right now and going off in their own way. And I think it grew too fast. A little bit like Frankenstein’s monster grew out of control and there’s so much out there, he’s in a defensive mode of trying to find the sites that have invaded rather than changing the business model. And 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’s questions being raised about that. And certainly, in his case, I don’t think it’s a good thing.

BRIAN KENNY: We’ve talked in the past because you’ve been on the show a couple of times and the Martin Luther King podcasts, we talked about crucible moments, which was one of the ideas that you’ve written about before. Is this kind of a crucible moment for Mark Zuckerberg?

BILL GEORGE: Huge. It’s his biggest crucible. He’s probably never experienced one like this before. It’s been up, up and away, and here he is down in his early 30s and all of a sudden he’s confronting something. And the question is, when will he acknowledge that he didn’t handle this well? That’s the question. A crucible is you can’t ever get through it until you acknowledge your own culpability and until you own you’re not … If you fire me from my job at a certain point in time, I got to look myself in the mirror and say, “What role did I have in getting fired?” Rather than blaming my boss. As long as I can blame outsiders and Mark in his CNN interview, which we show in class and is referenced in the case, which he did five days later, 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. You are responsible and you can’t just cast the blame elsewhere.

BRIAN KENNY: What kind of effect is this having on other people at Facebook? And it’s a big company. There’s a lot of people that work there. We know this is a generation of people and millennials that want to belong to something, to a company that has meaning and purpose. They probably felt like that’s what they were getting when they signed on with Facebook. But does this affect them in some way?

BILL 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 becomes a 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, which as of this week I think they’re still chasing and I think maybe they have to pull back. 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.

BRIAN KENNY: You go back and look at that decision to go public, which probably happened four or five years ago.

BILL GEORGE: It did.

BRIAN KENNY: Was that a mistake? Is that driving some of the behavior that we’re seeing?

BILL GEORGE: I teach governance and I serve on many, many corporate boards, and I can tell you 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.

BRIAN KENNY: Let’s assume that Facebook does want to regain the trust here. This is a great learning moment by the way. So I want to talk about the class in a second. Are there examples of other companies that you could think of. I’m thinking of Volkswagen and what they went through a couple of years ago with the emissions. The lies basically that they were telling about their cars’ emissions. Other companies that have been able to overcome something like this?

BILL GEORGE: Volkswagen hasn’t fully overcome it. One of my students worked for Volkswagen. He said that $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-ups going to hurt you a lot more and you’re going to lose the trust of the public. And it’s hurt Volkswagen sales tremendously. If you’re not upfront about these issues, it’s going to hurt you greatly. General Motors. Good example of one that went the ignition switch, Mary Barra takes over. She acknowledges and she said, “It’s not only a problem we have with safety, which we’re going to correct. 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 didn’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 information. The problem is that the field is growing so fast, it’s moving much faster than the regulators can figure out what to do. With artificial intelligence, these issues are going to mushroom by several orders of magnitude to be much more serious. If these big companies want to keep going they’re going to have to act in a very responsible manner. So actually, regulation can work to help the strong companies.

BRIAN KENNY: It certainly seems like you need a balance. You need to have some balance regulation and also some independence for business so they can continue to thrive.

BILL GEORGE: Exactly.

BRIAN KENNY: Consumers, by the way, have a vote in this too. Nobody’s forced to be on Facebook, so people choose to be on that platform. And a lot of people did jump off of it 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.

BILL GEORGE: Yes.

BRIAN KENNY: I assume probably everybody in that class has been on Facebook at some time or another? What were the kinds of themes that you saw emerging in the discussion?

BILL GEORGE: Some people were very really very angry that they felt really invasion of their privacy. Others were advocating for regulation. Others don’t like regulation, but acknowledged that 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, as I told you, I’m in social media. I have a total 180,000 people that I can connect with a push of a couple of buttons. I love to do that. I love sharing my leadership ideas and what I think’s important to be a good leader. So obviously, I shared a lot of things about Facebook, but I share a lot of other companies do good and bad because that’s the role I’m trying to play.

BRIAN KENNY: You mentioned the GM situation and how that’s been turned around, I mean fundamentally it turned around because a new leader came in and was able to change the culture there. Is that the only option that Facebook has? Is that the best option for Facebook?

BILL 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, yeah, 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.

BRIAN KENNY: Maybe there’ll be a B case on this one, Bill. We can talk about next year.

BILL 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.

BRIAN KENNY: Bill, thanks so much for joining us today.

BILL GEORGE: Thank you for having me. It’s a real pleasure.

BRIAN 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.

This content was originally posted on HBR.org on 4/3/2019.