Facebook and the Founder’s Dilemma

Facebook’s Mark Zuckerberg is unusual in the corporate world in that he is still in charge of the company he founded. PHOTO: GERARD JULIEN/AGENCE FRANCE-PRESSE/GETTY IMAGES

Facebook Inc. FB -1.36% Chairman and Chief Executive Mark Zuckerberg has vastly outperformed expectations for company founders.

That’s not just because the company he started in his dorm room is now among the most valuable stocks in the world and has made him vastly wealthy and globally influential, but because he is still the boss.

Recent research of about 6,000 American startups between 2005 and 2012 reveals fewer than half of their creators are still at the helm; earlier research suggests 80% of founders are eventually forced to step down as CEO.

Has that time come for Mr. Zuckerberg? After a string of missteps—and his clumsy efforts to defend them—related to user privacy and outside influence over the social-media platform, many have suggested it has.

He says he has no plans to relinquish control of the company he started in 2004, and he has the voting power to back that up. He also indicated the job of his top lieutenant, Chief Operating Officer Sheryl Sandberg, is secure.

Still, Facebook’s directors should be contemplating how to get an iconic founder to step back before it’s too late. Is Apple Inc.’s firing of Steve Jobs in the 1980s a potential path for Facebook? Or was the decision by Google’s founders to hire an experienced CEO in the early days a more relevant template?

Few companies seem to find the right answer to what Noam Wasserman dubbed “the founder’s dilemma.” He led research on thousands of startups and said entrepreneurs who start a successful venture are reluctant to hand it over to someone else.

“The majority of founders overkeep control at their peril,” said Mr. Wasserman, a professor who started the University of Southern California’s “Founder Central” research program. Even prominent founders “tended to get into deep trouble in recent years when they remain largely unchecked,” he said, citing Tesla Inc.’s Elon Musk, Theranos Inc.’s Elizabeth Holmes, Groupon Inc.’s Andrew Mason and Uber Inc.’s Travis Kalanick.

Years after Apple fired him in 1985, Mr. Jobs returned to the computer company to reinvigorate the product line. That outcome is rare. It is also an unlikely one for Mr. Zuckerberg given his hold on the voting shares.

Founders at Google, now a division of Alphabet Inc., took a different approach that is worth considering. Three years after Stanford graduate students Larry Page and Sergey Brin created the company as a better way to search through the internet’s ever-expanding material, they hired former Novell CEO Eric Schmidt.

In an interview with The Wall Street Journal a few years later, Mr. Schmidt talked about the balancing act of running a quickly-growing company where the founders remained involved but not in charge.

Among the big changes that he made was installing rigor in the decision-making process. Mr. Schmidt said the founders were still involved in charting strategy or guiding Google’s attempts at innovation, but they were spared having to deal with managerial decisions.

Clearly, Facebook’s problems are complex and different than those faced by a young internet search engine. The company is under fire for a slow response to uncovering Russian manipulation during the U.S. presidential race. Executives face scrutiny for not adequately protecting user data and a lack of transparency. Facebook has acknowledged it should have reacted more quickly to signs of Russian activity and has taken steps to give users more control of the data it collects.

But Facebook could still learn from Mr. Schmidt, who said he created a culture at Google where “decisions are made in front of people.” That advice that could go a long way at the social network, where the culture appears to be insular and the response to the current crisis had been controlled by a handful of leaders.

Mr. Schmidt no longer runs Google, but his tenure represented an important hinge in the company’s timeline. When he handed control and ultimate accountability back to Mr. Page in 2011, he said the transition would be seamless because, for a decade, “we have all been equally involved in making decisions.”

Steve Blank, a Stanford professor and a former CEO of startups, told me Facebook’s board needs to take the company’s ongoing trials seriously because it is facing a similarly consequential inflection point in its own timeline where a misstep could be very costly.

“We’re kind of running a bizarre experiment in how we approach social media,” Mr. Blank said, and Facebook is playing a lead role in the U.S.’s wild-west scenario. Executives like Mr. Zuckerberg and Ms. Sandberg need to show more urgency and resolve, or risk getting run over along the way.

“They have been gamed and are now dealing with the consequences,” Mr. Blank said. “Rather than being upset they were gamed, they went into a defensive crouch.” Fresh eyes may be needed in the management suite and in the boardroom, he said, or government regulation may be the only solution to Facebook’s problems.

“The question should be ‘what is the right thing to do for our customers and our employees and the country?’”

Mr. Zuckerberg, at 34, isn’t soon stepping away from Facebook. But tech giants who went before him, including the late Mr. Jobs, have something to teach him about taking even a small step back at a still relatively young age.

“I didn’t see it then, but it turned out getting fired from Apple was the best thing that ever happened to me,” Mr. Jobs said in a 2005 commencement speech at Stanford. He was fired at 30, a decade after Apple’s founding. “It was awful-tasting medicine, but I guess the patient needed it.”

Source: Wall Street Journal