The Motley Fool Rule Breakers team was back on the road this week, this time to tour Silicon Valley and attend the Google I/O developer conference. In addition to dispatches like this one, look for special updates at the Rule Breakers site and get live coverage at @TMFRuleBreakers on Twitter.
For us, the news that Facebook had hired PR firm Burson-Marstellar to orchestrate a smear campaign against Google (Nasdaq: GOOG ) arrived over lunch at In-N-Out Burger -- home of the Double-Double, and the best-run company Tim has ever seen. Apparently, The Social Network could learn a thing or two from the humble burger joint.
According to a report published by Dan Lyons at The Daily Beast, Facebook secretly hired Burson to pitch stories about Google invading people's privacy, and thus allegedly violating agreements The Big G made with the Federal Trade Commission. Two former journalists -- including one-time CNBC Silicon Valley bureau chief Jim Goldman -- executed the campaign, which even offered to help an influential blogger named Chris Soghoian write an op-ed skewering the search giant.
To his credit, Soghoian refused and posted his interactions with the firm online. Yet the whole affair is particularly galling to us as an ex-PR pro (Tim) and a former journalist (Karl). What was Facebook thinking? How could the company built on oversharing not know that this particular secret would be made public? Cookie jar, meet hand.
Why investors need to care
We wish we could tell you that this news surprised us. Instead, we shared a laugh and a knowing look. Arrogant, self-destructive behavior is part of the tech investing narrative in general, and the Silicon Valley narrative in particular.
Knowing this, it would be easy to write off this latest chapter in the Foogle Fight as more of the same old story. This kind of churlish unpleasantness derives from the Valley's legendary Reality Distortion Field -- a sort of business sitcom in which celebrity CEOs are hailed as heroes, outsized options grants are the norm, and change-the-world audacity is expected.
Balanced well, this business cocktail delivers multibagger deliciousness. Unbalanced, it's like stale seltzer water begging for a spit-take. Over time, as your stock-picking taste buds mature, you'll come to know which is which long before you press the buy button. For the rest, here are five signs that you may be betting on too big an ego:
1. Even marginal hires or promotions merit a press release
Hiring and promotions press releases are supposedly meant to demonstrate business momentum. All they really do is clarify a culture of arrogance. "The world must know we've hired [NAME ALMOST SENIOR EXECUTIVE HERE]!" Wrong. We don't care that you promoted Taryn Naidu to General Manager on eNom, Demand Media (NYSE: DMD ) . Unless this genius can make your content engine play nicer with Google, this press release is immaterial and a waste of shareholder capital.
2. Executives downplay competitors
We've heard management teams tell us often that no one can do what their company can. What a load of hoo-ha. Every company has competitors and competitive weaknesses. This is even true of Oracle (Nasdaq: ORCL ) , which regularly mocks rival SAP by pronouncing the company name "sap" instead of "S-A-P."
3. The founder runs the company
Like our leader at Rule Breakers, Fool co-founder David Gardner, we like investing in founder-owned companies. Motivated founders can help produce massive returns, as has been the case for Riverbed Technology (Nasdaq: RVBD ) , Whole Foods, and of course Google. But when founders' arrogance blinds them to disruptive changes in their industries -- as we'd submit happened to Siebel Systems founder Tom Siebel in the years before he sold out to Oracle -- staggering losses can result.
4. The CEO becomes bigger than the company
Here, too, we feel the need to tread carefully. Apple (Nasdaq: AAPL ) chief executive Steve Jobs is a celebrity because he's generated billions in wealth for investors. Marc Benioff of salesforce.com (NYSE: CRM ) , another CEO star, can make a similar claim. Yet there are plenty more instances where headline-grabbers have proven problematic. Look at Hewlett-Packard (NYSE: HPQ ) , where press-obsessed former CEO Carly Fiorina presided over some of the company's worst years.
5. It lacks that certain "je ne sais quoi"
We know how this sounds. But it's our experience on Rule Breakers that, as you hone your skills as an investor, you come to appreciate how winners talk. They're confident, yet humble. They're unafraid to talk about mistakes. They publish metrics liberally, because they measure themselves all the time. And most of all, they view themselves as shepherds of something much bigger than themselves. They're true believers, leading a movement that inspires passionate followers.
Fortunately, none of the companies we saw during this week's tour of Silicon Valley suffer these five syndromes. Sure, Google has been rightly accused of arrogance -- just witness its teasing of Apple during the I/O developer conference. Nevertheless, its openness is just the sort of je ne sais quoi we want on the Rule Breakers scorecard.
We can't be as sure about Facebook. Mark Zuckerberg is a celebrity CEO with what appears to be an arrogant, paranoid obsession with his primary competitor. It's unseemly, sad, and incredibly disappointing -- especially since there are excellent financial reasons to want a piece of The Social Network's IPO.
Do you agree? Disagree? Tell us what you think of Facebook's secret smear campaign, Google's privacy policies, and our five tests for separating the audacious from the arrogant using the comments box below. You can also rate Google in Motley Fool CAPS.
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