CEOs like Musk and Bankman-Fried torch company credibility because they just don’t know when to shut up

CEOs in general have been shown to have very low credibility. But that doesn’t mean their words won’t have dramatic consequences.

Self-proclaimed ‘Chief Twit’ Elon Musk and FTX crypto-exchange founder Sam Bankman-Fried are just the latest executives who don’t seem to understand — or maybe don’t care — about the impact of their words.

Musk’s recent decisions regarding Twitter appear to be causing escalating chaos in his newly acquired social media platform, with staff and advertisers stampeding for the exits. But he has a long history of Twitter posts that have caused massive damage to his long-suffering investors.

There is a long and shameful catalogue, but consider just a few examples:

• April 2018: Musk tweeted an “April Fool’s joke” that Tesla had gone bankrupt. The company’s stock dropped $3 before rebounding;
• July 2018: Musk falsely suggested a British cave expert involved in the dramatic underground rescue in northern Thailand was a “pedo”. Tesla shares fell 3.5%, stripping almost US$2 billion from the company’s market value;
• August 2018: Musk tweeted he was considering taking Tesla private, with funding secured. Shares rose 6% but the Securities and Exchange Commission made Musk and Tesla pay US$40 million in fines as part of a settlement for securities fraud;
• May 2020: Musk tweeted he thought the stock price of Tesla was too high. The stock lost 10% of its value that day;
• November 2021: After Hertz announced it would buy 100,000 Teslas for its rental fleet, Musk tweeted there would be no discount. Tesla shares fell 4%;
• November 2021: Musk polled his Twitters followers about whether he should sell 10% of his Tesla stock. Tesla’s price fell as much as 7.3%;
• April 2022: Musk tweeted an offer of US$44 billion for Twitter. Tesla’s stocks lost nearly US$40 billion in value within just one day; and
• May 2022: Musk tweeted that the Twitter deal was on hold, dropping the pre-market trading value of Twitter’s stock by 18%.

As financial reporter Jenny Cohen commented earlier this year: “There really isn’t a CEO quite like Elon Musk.”

Then along came Sam Bankman-Fried, the failed crypto king who, as recently as August, appeared on the cover of Fortune magazine over the question: “The next Warren Buffett?” This is particularly ironic, given that Buffett is a well-known vocal critic of cryptocurrencies and once described Bitcoin as “rat poison squared”.

With the epic collapse of FTX — amid a shortfall of perhaps US$12 billion — Bankman-Fried demonstrated not only business incompetence but also an inability to understand when to carefully choose his words.

In an astonishing late-night Twitter interview with VOX last week, the former CEO declared that his reputation as an advocate for greater regulatory oversight of the industry was all “just PR”. He added: “F— regulators. They make everything worse.”

Bankman-Fried was widely known as a proponent of “effective altruism”, and said he planned to give away the billions he made from the crypto exchange to charitable causes.

VOX reporter Kelsey Piper asked if he still stood by his view that it was okay to do unethical things “for the greater good” and whether his position on philanthropy was maybe “kind of the PR off-the-cuff answer?”

Seemingly unaware, he responded: “Man, all the dumb sh*t I said. It’s not true, not really. Everyone goes around pretending that perception reflects reality. It doesn’t. Some of this decade’s greatest heroes will never be known, and some of its most beloved people are basically shams.”

Pretty remarkable from a man whose personal fortune — once estimated at US$16 billion — had evaporated virtually overnight.

As Kelsey Piper prefaced her report: “I didn’t expect him to respond — typically, people under investigation by both the Securities and Exchange Commission and the Department of Justice don’t return requests for comment. Bankman-Fried, though, apparently wanted to talk.”

Which neatly captures the problem of CEOs not knowing when to shut up. 

A Weber Shandwick reputation study of global executives a few years ago — which involved 1700 C-suite executives (not including CEOs) in 19 countries — found that on average they attribute 45% of their company’s reputation, and 44% of their company’s market value, to the reputation of their chief executive officer.  

Superficially this data may seem encouraging, and an endorsement of strong leadership. But it also highlights just how potentially vulnerable companies are when the CEO says the wrong thing or just can’t stop talking and triggers financial disaster.

One CEO — Gerald Ratner — even gave his name to the phenomenon. 

In the late 1980s, Ratner had built up a chain of high-street jewellers across the UK, capturing more than 50% of the popular end of the market. But in a notorious speech to the Institute of Directors in 1991 he said his company’s glassware was “total crap” and that some of the earrings sold by the Ratner Group were “cheaper than an M&S prawn sandwich but probably wouldn’t last as long”.

He claimed he was joking, but the speech saw the business virtually destroyed, losing £500 million in share value. The result was 330 stores closed and 2500 jobs lost, including the CEO’s.

Such self-inflicted business obliteration became known as “doing a Ratner” or “the Ratner effect”.

Maybe the current generation will soon talk about “doing a Musk” or “the FTX crypto effect”.

Dr Tony Jaques is an expert on issue and crisis management and risk communication. He is CEO of Melbourne-based consultancy Issue Outcomes and his latest book is Crisis Counsel: Navigating Legal and Communication Conflict.