Why Mark Zuckerberg shouldn’t listen to management gurus

By Felix Salmon
February 10, 2012
This is why Mark Zuckerberg was smart to stay in complete control of Facebook and not listen to anybody telling him that a multi-billion-dollar company needed a seasoned, professional CEO in charge.

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This is why Mark Zuckerberg was smart to stay in complete control of Facebook and not listen to anybody telling him that a multi-billion-dollar company needed a seasoned, professional CEO in charge.

Jack and Suzy Welch are onto something when they diagnose a potential class problem at Facebook, post-IPO.

After its IPO, Facebook is going to have two classes of citizens. That’s just reality. Some of its 3,000 or so employees — several hundred in number by some counts — will have significant riches in the hand. Newer hires, though — well, they’ll mostly have options in the bush.

Where they go hilariously wrong is in their proposed solution to the problem. There’s a carrot, which as far as I can tell involves Silicon Valley manager-geeks suddenly transforming themselves into motivational speakers. And then there’s a stick:

With all this exultant “barking,” there also needs be bite — in the form of frequent, rigorous performance reviews. The facts are, if Facebook wants urgency, speed and intensity around its mission, those behaviors must be explicit values that, when demonstrated, result in bonus money and upward mobility — or not.

Any company, in the wake of an IPO, finds itself growing new and previously-unnecessary layers of management, especially in areas like the general counsel’s office, investor relations, and public relations. But for the Welches, that’s not enough: extra management also has to be marbled throughout the organization, to be found everywhere as “frequent, rigorous performance reviews”.

There is absolutely zero evidence that frequent, rigorous performance reviews ever do any good, and quite a lot of reason to believe that they actually do harm. And what’s true of business professionals in general is especially true of Silicon Valley engineers — a culture where pretty much everybody knows exactly who’s hot and who’s not, without any need for formal, frequent, or rigorous performance reviews.

What’s more, it’s far from clear that the best way to motivate a Silicon Valley engineer is to dangle an annual bonus in front of his face and tell him that if he works hard he could get an extra couple of months’ salary at the end of the year. Rather, the best way to get the most out of engineers is to surround them with other great engineers, in a collegial atmosphere where everybody works hard and everybody does really well building great products that everybody is proud of.

Performance reviews are horrible, divisive things which create a whole other set of class distinctions within a company, between the “high performers” who get money and promotions and the grunts who live in fear that their review will be used to punish or fire them. (And of course if bonus-greed isn’t a great motivator of computer engineers, fear is even worse, especially in the context of Silicon Valley, where there are multiple jobs permanently being dangled in front of just about anybody who can code.)

Managing a company like Facebook is all about creating a magnetic culture — a place where employees love to work, and where they’ll tell their friends that they’re having a great time and that they should come join them. Meanwhile, there has never been a company in the history of capitalism where managers really love the performance-review process and tell all their friends that they would hugely enjoy going through it themselves on a frequent and rigorous basis.

In other words, the mere existence of such things would probably be enough to put off many talented potential employees with a wide choice of possible employers. At a company like GE, a CEO like Jack Welch tends not to worry about such things. But at Facebook, the ability to continue to attract Silicon Valley’s best coders is very high up Mark Zuckerberg’s list of priorities and concerns.

Which is reason number 1,452 that all of Facebook’s shareholders should be very happy indeed that the company is being run by Mark Zuckerberg and not by Jack Welch.

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17 comments so far

Amen!

Posted by ReuterReader76 | Report as abusive

Well, Jack is certainly thinking like the guy who make his reputation in part through the GE evaluation process. but it’s never been clear to me that Facebook is anything about having the best coders. There aren’t difficult technical problems to solve at Facebook, but there are difficult scenarios to define and propose solutions for. That seems to place a higher value on product managers and business analysts, and not so much on the implementers. The software architects also have a significant value here, because they have to design a solution that can scale enormously, and that’s no small challenge, but I don’t see coders as having a real competitive advantage in this environment.

Posted by Curmudgeon | Report as abusive

I think it is naive to not recognize that post-IPO there will fundamentally be different classes of facebook employees…many will be wildly rich, while the next bunch will not. That’s just fact. Folks doing the same job will be worth millions apart. There will be all manner of cultural challenges around this.

Working next to a person that made 20 million while you make $100K because you joined the company later is likely more divisive than a performance review. That’s why many of the original folks will likely move on.

Engineers are not all altruistic academics that are simply motivated by working around smart people…those folks work at universities as researches, not at facebook…the young 20 somethings going to facebook want to make money and build long term wealth AND work at a great fun place.

Companies must have a mechanism for determining performance and rewarding those employees that add value. It’s just silly to think otherwise. The traditional method of doing that might not be right for an engineering firm, but that simply means there needs to be a better way for those kinds of firms and there are good models for doing that…like at Gore.

No one likely judging others, but performance is important. In sports, you bench some and start others and you need to know who your key players are.

In their filing statement, Zuck, states that one of the IPO’s main functions is to reward its shareholders and employees.

Posted by ReutersCom444 | Report as abusive

“Performance reviews are horrible, divisive things which create a whole other set of class distinctions within a company, between the “high performers” who get money and promotions and the grunts who live in fear that their review will be used to punish or fire them.”

I get the idea that early Facebook employees with stock worth tens of millions aren’t going to be motivated much by a sub $100k bonus – it will be pride, enjoyment of work, etc. I also get that most employees prefer a collegial environment. What I don’t get, however, is how one is supposed to run a company the size of Facebook without positions like, uhh, managers? Similarly, I’m going to assume that not every employee hired by Facebook will be good at their job (or a fit with the culture).

So, while I get that it’s easy to say that annual performance reviews have problems, what’s the proposed alternative? At some point, in some way, you’ve got to decide who to promote, if someone should be fired, and, before one of those happens, to communicate to people if you think they’re doing well or doing badly, ideally with some constructive comments on how they can improve. It’s great to say that managers should be doing that every day, but in my experience most managers would rather focus instead on the “do the project” side of things, so guaranteeing that reviews happen periodically makes sense.

It’s like annual budgeting – easy to say that it’s a waste of time, encourages people to game the system, etc. – but an organization of any size tends to be a clusterf**k without it.

Posted by realist50 | Report as abusive

“frequent, rigorous performance reviews”. Is Welch being paid by a competitor for Facebook’s talent? Would there be a better way to get their engineers to leave, and to stop employees of other companies from joining them?

I’ll go out on a limb here and say Welch has never managed a .com, and understands the culture there as much as those workers would ever understand what it’s like to be an exec at a giant multi-national like GE.

Posted by KenG_CA | Report as abusive

Damn DUDE, YOU Really Hate the GURUS

Posted by horse_ebooks | Report as abusive

As someone who has been an executive a .com’s since they first started, and has an MBA to boot, the Performance Review has got to be the absolute WORST invention ever. No good at all can come from one. None. They are generally now used in the most perfunctory way possible and are probably the single most demotivating action a company can take. Period. Generally now they are tied to some sort of raise which even makes them worse than terrible. No one is honest in these, there’s too many avenues for personal feeling to get in the way of business judgement and HR people should all be fired en mass anyhow as far as I’m concerned unless they’re doing harmless things like keeping the 401k going or picking health plans or giving compliance talks. Raises should be given across the board and bonus on company performance or profit sharing on clear company goals. Salary tied to some sort of subjective set of guidelines can only lead to problems.

I think Jack has in mind a review process that is 360 degrees and where people are honest and critical in both directions. Unless there is a clear company culture, like at GE where this is ingrained, it’s not going to work. Imagine one of Jack’s SVP’s going in and telling him off in a 360 review! How long do you think he would last? And it certainly isn’t going to work for a bunch of coders who have no personal skills and would rather be left alone…the opposite of customer service or sales teams. Just a terrible system for any software company.

Posted by skyman123 | Report as abusive

Please leave facebook’s business to Mark, he knows it better than any other half wits’s

Posted by nooob | Report as abusive

Felix, please break onto the set next week when Jack and Suzy are on, apologize, then bring your letter of resignation to your boss and tell him you can’t work any longer at a place where you’re not let in on the jokes.

Jack Welch ran the country’s largest manufacturer for a couple of decades. He has to be aghast watching our industrial base be replaced by useless, mind-numbing, time-wasting advertising funnels, like Facebook, Groupon, Zynga, and all the rest of the pump-and-dump crap Sand Hill Road is pimping — again.

Any “help” Jack can offer that helps put that ridiculous piece of American “industry” out of its misery sooner rather than later is a patriotic service to the rest of us.

Posted by WeWereWallSt | Report as abusive

If they hired the right people up to now, the IPO won’t mean a drastic change in culture. Jack understands finance/sales, not engineering, and certainly not creative engineering (i.e. software/internet).

You nailed it Felix. Good work.

Posted by AngryInCali | Report as abusive

I work at a fairly large institution, and my impression is that performance reviews are done so that HR managers in the HR office can feel like they’re doing something to keep track of the employees, and also as legal CYA when issues come up. Your own manager–the guy you report to and work with–does not need a review to know whether or not you’re doing your job.

Posted by Moopheus | Report as abusive

I would not listen to management gurus easier because they are usually just in it for the money and end up destroying the morals of the company.

http://assistanceforsinglemothers.com/

Posted by Donnyg16 | Report as abusive

“legal CYA when issues come up.” Yep, mostly.

This is the same Welch who’s described in glowing terms the wonders of getting rid of 10% of his management periodically, regardless of abilities or where people are in their lives, just so nobody gets too comfortable. So the goal in surviving these reviews is evidently to set aside enough to job-hunt or retire on before you burn out, or to get high enough on the ladder to get nice and comfy. I must say that whenever I’ve seen Welch in any public setting he’s always impressed me with an enormous degree of self-satisfaction, or self-congratulation, above anything else.

And I’m not sure this is so far removed from the management school that said “if it ain’t broke, break it.” Which I experienced in action, and which ultimately is a tool to achieve managerial totalitarianism.

I do seem to recall that GE’s big successes under Welch were mostly in finance rather than manufacturing, and it’s interesting to see that Immelt is making a big deal of actually investing in domestic manufacturing for a change. I think Welch was fortunate in his timing as much as in anything else.

Posted by Altoid | Report as abusive

Jack nails it. He recognises that business are organisations that made up of people and as much as each group wants to think they are special, they’re really not that different at all and Facebook will run into the boring problems that all organisations face as it grows. Becoming #1 is easier than staying there.

His insight is what most people are missing, labour supply with newfound wealth is backwards bending –Economics. Jack is saying that the guy that is now worth 1 or 2M but gets paid 100 or 150K will re-evaluate how much time/effort he spends working, his ultimate performance will decrease b/c he now has the financial wherewithal to do other things and the value of that extra dollar from working isn’t enough to keep him working, instead there is a shift to enjoy leisure time.

Regardless of the utility he used to receive from his job, money changes that for most people; unless of course you’re truly the founder, visionary or other principal of the organisation. Jack is saying that there will be wealthy people who no longer have the same passion as they did before, they will show up and work but they will lack that burning desire to push the company forward and keep it #1. Look at any sport to see how it works.

Nothing kills performance more than deadweight on your team, in the beginning everyone was working their assess off towards a goal, now that they have achieved it, priorities change. The next generation of Facebook employees needs to have incentives; otherwise they will find a start up where they can pour their efforts into.

Posted by jay_dilley | Report as abusive

@Curmudgeon:
“but it’s never been clear to me that Facebook is anything about having the best coders. There aren’t difficult technical problems to solve at Facebook, ”

Oh my, you are so wrong.
The fact that it SEEMS like Facebook is easy doesn’t mean it actually is. Facebook has a problem basically as hard as Google’s — looking for correlations and patterns in a VAST amount of data. Facebook, for whatever reason, hasn’t made as public a point of its computational nous, compared to, say Google, but talk to people in Silicon Valley…

Take just two example (which are on the public side of the Faecbook ledger): Prineville and Hiphop. Both of these, very different, are not the products of a bunch of amateurs.

Posted by handleym | Report as abusive

@handleym, that’s not a coding problem, it’s a math problem. That’s the sort of thing I’m good at :) .

Posted by Curmudgeon | Report as abusive

You’re absolutely right!

Posted by killad1508 | Report as abusive
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