I’m already on the record with my profound lack of respect for Mark Pincus and his stop-at-nothing greed and selfishness. His pursuit of personal wealth as CEO of Zynga is well-documented. He’s looking out for himself, regardless of the impact on the other stakeholders around him. I outline the fundamental issues in this post. The speech he gave to an audience of new entrepreneurs about how he used every dirty trick he could think of to trick early customers and grow Zynga revenue (captured here on video) was certainly a low point.
But I think he has hit a new, even lower, low.
The Wall Street Journal is reporting today that Pincus has decided he gave too much stock away to some early employees. So on the eve of their stock finally being worth something in Zynga’s much-anticipated IPO, he as apparently been demanding that they give some back or be fired (in which case they would presumably loose even more – most stock option agreements are written such that you lose all the options which have not yet vested when you are terminated).
His rationale is claimed to be based on performance – some of these early employees have been deemed over-compensated for what they have delivered. It is fine if he wants to run his business as a meritocracy – probably a good idea. But whose fault is it that these early employees were hired in the first place? Mark Pincus. And whose fault is it that they were given too much stock? Mark Pincus. He is the one who convinced these people to come into his company and enticed them with the promise of future equity gains in lieu of cash compensation. They were taking on a great deal of risk and opportunity cost to join him and help build something that will make him a billionaire. They were compensated for taking on that risk precisely by being given equity that held the promise of some upside in the event of a good outcome. Now that the outcome is looking too good, and replenishing the pool of stock to give away to new hires would cost him dilution, Pincus is coercing those people to give stock back based on threats. They might not deserve to make tens of millions, but a deal is a deal – in each case it was a contemporaneous exchange of value based on estimates and arms-length negotiations made at the time. And if anyone had an informational advantage during those estimates, it was Mark Pincus.
And yet, now that it is turning out even better than anyone foresaw, Pincus wants to renege on the deal he struck and take the stock back. This is beyond bogus. It is greedy and short-sighted. It is an arbitrary abuse of his discretion as the golden boy CEO of the moment. He is punishing other people for his own failings. And he is setting a very bad precedent that may have long-lasting negative effects in his beloved Silicon Valley ecosystem.
Part of what makes the Valley a productive source of new start-ups is that companies can get off the ground with less friction. People understand the process, and there are certain norms in which people can believe. Much of the system runs on trust. Someone with skills might jump in and help an entrepreneur build out a concept during nights and weekends. That skilled person doesn’t impose a lot of friction or paperwork because they know it might not amount to anything. But they also know that if it does, they can trust the system to do the right thing and recognize their contribution appropriately.
Pincus is taking a step which will be the beginning of the unravelling of that trust. He can probably get away with it – he seems to have a knack for screwing people. And I am sure that he has many friends in high places who don’t want to be diluted by replenishing the pool either. But where was their oversight when he was pissing the stock away like a drunken sailor? What makes it permissible jump in now and simply demand it back? Nothing. The idea will spread to other CEOs by means of Pincus’ high profile example, and before long, the fabric of trust will unravel.
That will be a terrible loss, not just for the screwed-over individual employees, but for the whole Valley and our innovation economy overall. All to make a tiny number of incredibly wealthy people a very marginal amount more wealth. That is incredibly poor judgement, and a really bad trade-off. Shame on you all.
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