Does It Matter If We Hate Facebook?

Congratulations are in order. Facebook has managed to do something that climate change, the national deficit, the opioid crisis, student debt, and income inequality could not: unite Democrats and Republicans.

In April, CEO Mark Zuckerberg spent ten hours as a Congressional pinata, with legislators from both sides of the aisle pushing and shoving for their chance to take a swing. This week it was executive David Marcus's turn. The company has climbed to the top of the "most-hated corporation" list over some pretty stiff competition, including Purdue and Wells Fargo, not to mention perennial contenders Walmart, Dow Chemical, Microsoft and Phillip Morris.

Which raises the question: So, what? Does being hated, or at least mistrusted, really matter? The answer is yes, but probably not in the way most of us think.

The Facebook marketing department is surely rattled. To marketers, trust is sacred and once lost can never be regained. But consumers are likely the least of Facebook's worries. At the recent Aspen Ideas Festival, CEO Tom Wilson of Allstate said their research shows that 25% of internet-users don't care about privacy. For some Facebook users, trust was never part of the brand promise in the first place, or if it was, it was a small part relative to convenience and connectivity. Consumers make trade-offs. A lot of people who don't love McDonald's still take their kids there after soccer practice. Anyway, consumers tend to be pretty forgiving. J&J has been accused of killing its customers at least four times—the Tylenol contamination, toxic shock syndrome, talc, and now opioids, and yet consumers still buy their baby shampoo.

Nor will it probably matter to investors. For all the talk of ethical investing and finger-wagging by Laurence Fink of BlackRock and others, it's not clear that investor disapproval affects stock price. And if the stock of a price drops below its intrinsic value, someone or something will snap it up, like a "smart beta" ETF's, the holdings of which are selected by algorithms, not people.

Trust does matter to governments. That includes legislators at the federal level, like those Zuckerberg faced today, as well as elected officials at state and local levels. There are also regulators, like the FTC, SEC and IRS, with whom Facebook has daily interactions. And there are the courts. An executive with IBM once quipped they got sued so frequently that the company was really a giant law firm with a tiny computer business out the back. Facebook operates around the world, which means its regulatory portfolio contains literally hundreds of relationships.

To the extent Facebook is seen as untrustworthy, the lives of those executives and managers charged with dealing with the various government interfaces gets exponentially harder, and the legal and consulting fees exponentially larger. It's happening already. Facebook is launching its own crypto-currency, Libra. In this week's hearing, Representative Brad Sherman of California compared Libra to 9-11 in terms of the danger it presented to America. Right now, in a conference room somewhere in Manhattan, highly-paid PR consultants are scrambling for ideas to erase that quote from people's minds. The meter is running.

But there is another group where trust and likability matter even more—employees. For most consumer-oriented companies, the primary metric is market share. But Facebook has essentially 100% share of market. For companies like it, the metric that matters is "talent share." Can it get and keep the best talent? Employees and potential hires are very sensitive to public perceptions of their company. No one wants to go to a pool party and fib about who they work for or to have their wives ostracized or their kids picked on. During the financial crisis, AIG executives had to take the company name off company credit cards to avoid being accosted by wait staff in restaurants. The HR costs of being a disliked company are real and significant: higher turnover, needing to pay more for talent, and in some cases, simply not being able to get the best and the brightest at all.

Don't expect Facebook stock to fall off the cliff tomorrow. But the costs of being mistrusted and disliked mount up over time. Executives at un-liked companies spend more time in Washington being grilled by Congress, more time trying to persuade potential hires to join them, more time apologizing and explaining, and in short, more time dealing with issues not directly related to the business.

So yes, it matters.

Source: Newsweek

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