How Facebook failed its users and its shareholders
Nothing in modern business history illustrates the importance of relational capital – or the vulnerability of corporate reputations generally – as the recent collapse in the Facebook share price.
In a single day, Facebook (FB) lost nearly US$120 billion of market capitalization. This represents the biggest one-day fall of a major public company in history.
The market shock was so extraordinary that some frustrated Facebook investors (who have been riding a share price rocket) are suing the company and its chief executives. Apparently, these shareholders felt they were misled and should have been warned ahead of the public announcement (isn’t that insider trading?).
Ironically, the under-appreciated truth is that Facebook management is protecting their shareholders’ longer-term interests by preserving their primary asset – the relational equity the company has with their 2.5 billion Facebook users, who are growing more and more concerned about the company’s privacy policy and how it might affect their personal data.