Facebook vs. Nasdaq: One Party Plays Blame Game, Earning an F


One of the truths we’ve learned from analyzing miles and miles of column inches and billions of bytes of online news is that the bigger the event, the more the likelihood of negative coverage. It’s the Publicist’s Paradox: The more effective you are at generating attention for your company, event or happening, the more inevitable the negative coverage. So it was hardly surprising that the Facebook initial public offering would generate its fair share of skeptics and naysayers even before it actually went public.

Yet the May 18, 2012, IPO was supposed to be a glorious day for all stakeholders involved, making employees wealthy and bringing a much-needed boost to Wall Street. But what no one planned for was first that the underwriters would lower their financial forecasts and only tell insiders—not the general public—and that due to a tech overload, millions of dollars in trades either couldn’t be placed or couldn’t be canceled.

TWO SHINERS

The result was an enormous black eye for both Facebook and Nasdaq, with some suggesting that the debacle would change IPOs forever. In fact, the U.S. Senate is holding hearings on the matter. And while the technical glitch was clearly Nasdaq’s responsibility, both parties suffered from the crisis, and in different ways shared responsibility for the problems.

The most interesting part of the aftermath was that each company handled the crisis like siblings in a family prank gone wrong. Facebook played the classic younger sibling—essentially saying, “I had nothing to do with it, it’s all everyone else’s fault,” shifting blame to its underwriters and the stock exchange while its CEO essentially disappeared into the sunset (and out of the spotlight) with his new bride.

THE BLAME GAME

After a group of Facebook shareholders filed a lawsuit on May 25, 2012, against the company— Morgan Stanley and other banks alleging that important information about Facebook’s financial outlook was “selectively disclosed” to big banks ahead of the IPO—Facebook replied in a legal filing that while its executives did meet with analysts from the banks underwriting its offering, nothing illegal occurred.

“[Plaintiffs] ignore that what Facebook and the Underwriter Defendants allegedly did both followed customary practices and did not violate any rules,” the company stated. The filing went on to state that problems with Nasdaq’s software systems fouled up Facebook’s first few trading hours, leaving many buyers in the dark about what they had bought and at what price they scored shares.

Those problems “created market uncertainty and caused investor losses,” Facebook said in the filing. The company pointed to a mea culpa Nasdaq issued, and quoted press articles spotlighting the role Nasdaq’s errors played in the share-price drop following its IPO.

A WISER RESPONSE

In contrast, Nasdaq and its CEO played the role of the older and wiser brother, shouldering the responsibility. CEO Robert Greifeld was remarkably forthright and openly criticized his own IT department for overconfidence and under-preparation. Here is what Greifeld said to The Wall Street Journa l in an interview after the fact: “Nasdaq’s ordering system had successfully handled 480 IPOs in the prior five years, but was unprepared for the crosscurrents around Facebook’s IPO, one of the biggest ever. Testing didn’t account for the increasing volume at which cancellations can come in.”

While coming down hard on IT, Greifeld also called out his executive team for negligence, saying that Nasdaq executives relied much too heavily on assurances from the exchange’s technology group. “We did not have enough business judgment in the process,” he said.

Greifeld’s transparency has helped Nasdaq, as Facebook continues to bear the brunt of criticism from both the media and the public on any move it makes. Yet perhaps the June 25 announcement that Facebook COO Sheryl Sandberg would become the first woman to sit on the company’s board of directors will soften the hard edges that Facebook has developed since that fateful day in May. PRN

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Facebook

Criteria

Grade Comments Advice

Extent of coverage

F

Given the hype leading up to the IPO, it was hardly surprising that every journalist who was writing about the IPO also wrote about the disaster afterward.

Be careful what you wish for: All those media contacts you make don’t always lead to positive mentions. They can also lead to a negative mention if your company does something stupid.

Effectiveness of spokespeople

F

Some writers were openly questioning Mark Zuckerberg’s competence. The CEO essentially vanished, making himself completely unavailable to the media and leaving many questions unanswered.

All the media training and dolling up in the world can’t change your CEO’s stripes. He or she got there in part because of his/her personality, and that personality will manifest itself under pressure. So deal with it.

Communication of key messages

D

If its message was “we have 900 million users and a ton of cash,” they clearly got it across in the pre-IPO coverage. Unfortunately, that message was drowned out by negative messages minutes after the stock went public.

In a crisis, you need a completely different set of messages, specifically, “We’re sorry, we’ll make it right.” Facebook communicated none of those, sticking to its IPO messages.

Management of negative messages

F

This is where the Facebook team deserves the most criticism. Once the crisis was in full swing, there were no calming messages, nothing to restore trust other than “blame the underwriter” or “blame Nasdaq.”

In any crisis, job No. 1 is to restore trust and confidence in the organization, and that only happens with full disclosure, openness and transparency.

Impact on customers

C

Facebook’s customers seem to be happily oblivious to most of the tumult around the IPO, continuing to post, chat and share as they did before. But rather than do anything to assuage any concerns, Facebook announced another privacy-related change, imposing new default e-mail addresses, making customers more vulnerable to spam.

The way to restore trust after a crisis is to be more open and honest and transparent. That means announcing everything as openly as possible and not allowing changes to be discovered by reporters. Ideally, don’t change anything or announce anything major for at least six months after a crisis, because whatever you say, it will be greeted with skepticism.

Overall score

F

The problem with Facebook has always been its conflicted nature—it promotes sharing information but shares very little itself. Until it learns to be more open and honest it will be very hard to rebuild trust with shareholders or customers.

In an age of instant information, every organization is constantly vulnerable to a crisis. The only way to survive is to constantly build up your trust bank by being open, honest and transparent and acting in an ethical way.

Nasdaq

Criteria

Grade

Comments

Advice

Extent of coverage

F

Nasdaq has taken the brunt of the blows on this one, and as a result has dramatically increased its visibility, and the visibility of its CEO and IT systems, which in the long run might not be a bad thing.

Normally you want to see the volume of coverage after a crisis decline, but Nasdaq is using the continuing attention to rebuild its image and restore trust.

Effectiveness of spokespeople

A

CEO Robert Greifeld gets a gold star for his post- debacle performance. Using words like “inadequate” and “overreliance” and “arrogance” goes a long way toward rebuilding credibility.

If you can get your CEO to use real English and admit mistakes, you are already on your way to rebuilding trust.

Communication of key messages

B

Greifeld drew attention to Nasdaq’s technology throughout, which was both good and bad. Clearly, the company wasn’t up to the Facebook job, but it also was an opportunity to highlight the 400+ other successful IPOs it has handled.

It’s rare that you can find a silver cloud message in the midst of an apocalyptic string of bad news, but if you can find one the time to get it out is when the cameras are already focused on you.

Management of negative messages

C

The fact that Greifeld actually traveled to Silicon Valley to meet with other CEOs was a bold move that the media made note of. With his colorful quotes, Greifeld not only kept the messages in the news, but managed to diffuse some of the negativity.

Something as simple as a CEO’s choice of words or choice of venue can make a huge statement and go along way toward moving the media focus away from the initial event.

Impact on stakeholders

C

Yes, Facebook was the biggest IPO disaster we’ve ever seen, but in an era when there’s a new crisis every week—and a new IPO every other week—the long-term impact will be minor.

The good news is that the media and Congress today have an attention span shorter than the life span of a fruit fly, so unless a similar disaster strikes in the near future, chances are that the attention will shift to a different problem.

Overall score

B-

Under the circumstances, Nasdaq handled the crisis as well as anyone could and, in post-crisis actions, is showing that it has the capacity to rebuild lost trust.

The rules for surviving a crisis have changed dramatically in the last few years. Openness, human emotion and plain English are a lot more effective than prepackaged responses and extensive media training.

CONTACT:

Katie Paine is CEO of KDPaine & Partners, a PR measurement agency. She can be reached at kdpaineandpartners@gmail.com.




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