The recent departure of two Snap executives is just the tip of the iceberg in corporate culture. Snap has been plagued by corporate governance issues such as inappropriate relationships, short-lived C-level executives, compelling leadership, FBI / DOJ / SEC investigations, and class actions.
The most recent news came as two senior executives left after an investigation into an inappropriate relationship with an outside contractor. Global security chief Francis Racioppi was fired late last year after the company completed an investigation into its relationship with an outside contractor he hired. When the relationship ended, Racioppi canceled the contract. Racioppi’s departure was followed by Human Resources Director Jason Halbert. Halbert had recruited and hired Racioppi, who also reported to him.
Racioppi and Halbert aren’t the only ones running away from the ghost. CFO Tim Stone (formerly at Amazon for 20 years) left after just 8 months. Stone was apparently unhappy with the drop in the stock price and, therefore, his salary. He also bypassed CEO Evan Spiegel and went directly to the board asking for a raise after learning that another executive was getting more pay. The departure of CFO Stone saw the share price drop sharply, which is $ 7 at time of publication, from its IPO price of $ 17.
Human resources issues are a subject that the board must address as part of a complete overhaul of the corporate culture. Do they have an updated code of conduct in place? Is there annual training that includes unconscious bias awareness, up-to-date anti-sexual harassment and compliance training, and extensive reporting training for management? Do they have a functioning hotline system for anonymous reporting? Despite the fact that Snap has programs in place to address these HR concerns, their current issues should be a signal to the board (and management team) that their code of conduct and programs training programs need to be updated and revised at an accelerated pace. to avoid further problems.
CEO Evan Spiegel has managed to maintain an unusual level of control as Founder / CEO. During Snap’s IPO, public shareholders did not acquire any voting shares. After the IPO, Spiegel controlled 48.4% of the voting shares. Spiegel’s post-IPO bonus was worth $ 637 million and represented 3% of total shares outstanding at the time of the IPO. It will be paid over three years, adding to its control of the stock over time. Spiegel co-founder Bobby Murphy is the second largest shareholder, with 47.4% of the voting rights. Both essentially control all the shares, and if one of them dies or becomes incapacitated, the other takes back all the voting rights for those shares. So in theory it is a public company, but it does not have a public company ownership structure.
Then there is the mass exodus. Of those who helped publicize the company, nearly all of the senior executives have left and more than a dozen senior executives have left in the past year. These executives have been replaced with strong recruits, but it would appear that they have not been able to form a cohesive team or strategy given the continuing problems in the business. Mr Spiegel is very distant, working alone on the top floor of headquarters in his ‘ivory tower’ with his two assistants, traveling separately in his own jet during the IPO roadshow, and traveling with an excessive amount of armed security, even at his own offices.
Former employees have reported that Snap’s management stifles dissent, once you voice an opinion that doesn’t agree with Spiegel, you start to lose your status and become bullied. The board has a separate chairman to counterbalance Spiegel’s otherwise unchecked power. Chairman Michael Lynton, former CEO of Sony Entertainment, is a qualified chairman with significant leadership and board experience. The rest of the board have excellent experience and in-depth and breadth of skills directly relevant to Snap as well as corporate governance and operational backgrounds.
While leadership styles vary, Spiegel’s domineering style doesn’t work for the social media giant. The platform redesign that Spiegel undertook in early 2018 was a disaster. It seems that after traveling to China and meeting social media companies there, he decided to completely revamp the flagship SnapChat app. The overhaul would have been given a 6-week deadline (an elusive goal for any business), which was made more difficult when CEO Spiegel took control of all aspects of the overhaul down to the smallest details of the choices made. police.
Despite several issues, negative and mixed user reviews, and concerns from the design team, CEO Spiegel pushed the redesign all the way with disastrous results. SnapChat lost users on a quarterly basis for the first time in its history and the share price fell to $ 4.99 / share. Mr. Spiegel had been presented on Wall Street as a design guru with an instinct for user experience. The design debacle and its insistence on an investment in Spectacles (sunglasses for video recording) that led to a $ 40 million write-off proved otherwise and called its leadership into question. The board may be giving Spiegel too much leeway or not measuring key metrics enough to guide company strategy. Or maybe they weren’t aware of what was going on. It wouldn’t be the first time that the board was not briefed on Snap’s key strategic events. It was reported that in mid-2016, Mark Zuckerberg approached Spiegel about Facebook’s interest in buying Snap. Mr Spiegel did not disclose the opening to Snap’s board, he alone made the decision to veto any further discussion with Facebook.
Snap is also the subject of several regulatory investigations by the SEC, FBI and DOJ. Questions have been raised about how Snap collects and reports user statistics. Other investigations relate to their Instagram competition IPO disclosures. Former Snap growth chief Anthony Pompliano is also in arbitration with Snap, alleging he was wrongly fired when he feared the IPO had misled investors with false metrics. Concerns like Pompliano’s should have a clear process in place to reach the audit committee, independent of the CEO and internal executives. This would allow the board to independently determine whether an investigation was necessary and further action taken.
Snap would benefit from reviewing the current policy they have in place and perhaps refreshing and retraining employees so that everyone in the company is properly aligned. A standard “hotline” whistleblower policy should be in place at every company. The policy should state how an employee can report, to whom exactly the report should be made, and that the employee will be protected from unlawful retaliation and discrimination for properly disclosing or reporting illegal or unethical conduct.
It looks like changes are coming, Mr. Spiegel has publicly acknowledged the design change mistakes. “We rushed our overhaul, solving one problem but creating many more,” he wrote in a note to employees last fall and for the past seven months has held monthly employee meetings. in Santa Monica’s office. While these are good signs, it’s likely the board will need to consider a plan to start working on their CEO succession plan. It’s not often that a founding CEO can move towards profitability and unless Mr. Spiegel can adjust his management style, Snap’s success may require a change in leadership. Unfortunately, the power does not lie with the board of directors, it is squarely in the hands of Spiegel and Murphy who hold all the voting rights.