Campaign to oust Facebook CFO David Ebersman begins, but why?

As I suggested might happen, those looking for a scapegoat in the Facebook IPO controversy have turned their sites away from CEO Mark Zuckerberg. It seems that CFO David Ebersman is the next candidate in the firing line.

The campaign to oust him officially began last night with a column in  The New York Times by their deal guru Andrew Ross Sorkin:

“And yet if there is one single individual more responsible than any other for the staggering mispricing of Facebook’s I.P.O., it is Mr. Ebersman. He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34.

He — almost alone — pushed to flood the market with 25 percent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company’s strategy will lift the stock price any time soon.”

Tough stuff. But it’s also off the mark.

Sure, Ebersman played a role. He’s the CFO after all. But as Mark Cuban points out, Ebersman did exactly what he should be doing, which is maximize the amount of money that Facebook raised in the IPO:

“Facebook was able to raise about 10 BILLION DOLLARS in this IPO. The CFO’s job is not to manage shareholder portfolios. His job is to help Facebook succeed. I don’t know about you, but putting 10 BILLION DOLLARS in the bank in my opinion is one way to help them succeed. “

This argument has been made before, of course. And yet, as the stock continues to slide, and with bigger dips predicted, it seems inevitable that someone would call for someone to take responsibility.

But why? Zuckerberg and Facebook were very clearly that they were not interested in short-term swings of stock and earnings in the prospectus. Sorkin tries to raise the issue of employee morale and retention:

“Facebook’s falling stock price is not just a problem for investors; it is quickly creating real questions inside the company about its ability to retain and attract talented engineers, the lifeblood of any technology company.

Employees who joined the company starting in 2010, for example, are now holding onto restricted shares that were granted at a higher price — $24.10 — than the current trading price. (It should be noted that these are restricted stock units, not underwater stock options, so they do still have real value, but not nearly what the employees had expected.)”

Maybe. But of course, for most employees, the Facebook IPO is still a windfall. And if worse comes to worse, Facebook could always re-price the options and take an accounting hit. But it seems unlikely to me that Facebook employees, or Facebook execs, are leading a groundswell calling for Ebersman’s heads.

No, it seems much more likely that such a push would be coming from bankers, who are pretty much the least sympathetic figures on the planet at the moment. Sorkin’s piece notes that no bankers have lost their jobs over the Facebook IPO, before swinging back to trashing Ebersman.

But still, it is the bankers, and their clients, who are the ones mostly likely whispering in Sorkin’s ear. And that’s because they are the ones suffering the most in the short-term over the Facebook stock price. The bankers no doubt let all sorts of high-flyers buy Facebook stock at $38, thinking they were likely getting a windfall.

Instead, bankers spent the first day buying up Facebook stock to prop it up over $38, just to save face. That likely cut into the profits from the hefty fees they earned. And then, for those clients who weren’t able to flip on the first day, they now find themselves under some serious water, with little prospect that they can sell their shares any time soon.

These clients are probably sending angry emails to their brokers, who are in turn looking for someone to do…something! And those brokers are likely fuming at their investment banking brethren. And those i-bankers, who no doubt consider themselves faultless, are looking for anything that can give the stock a bump, and get everyone off their backs.

So, starting a whisper campaign to shift the blame to Ebersman makes sense, from a banker’s perspective. But beyond that, canning Ebersman, would probably be a big mistake for Facebook. It would seem like a panic move for Zuckerberg and the board. And it would seem to betray their insistence that they would not be driven by the short-term thinking of Wall Street.

Too bad that some wealthy folks took a hit on this one, but then, it is a high-risk investment, and they and their brokers knew that full well. The real problem, is that bankers and their wealthiest clients have likely become accustomed to a world where they get bailed out when they fail, and so never really lose or face consequences when their investments go south.

Even when they lose, this crowd usually finds a way to win. Soothing their wallets, and egos, seems like a bad reason for Facebook to sacrifice one of its own.

 

 

 

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