For those among us that follow the social business space and use the social medium to further relationships and to establish and build trust, the recent controversy around the Facebook initial public offering (IPO) has to seem a bit ironic.
Facebook is now the largest, and some would argue most pervasive of the social channels; a place where people come together to connect, share and nurture relationships – and build trust. Facebook is now the subject of a potential lawsuit from investors who claim the social network didn’t let them know all there was to know in the days and hours leading up to its offering to public investors.
Trust Is The Foundation of Investing in Relationships and Markets
For sure, Morgan Stanley and the slate of other underwriters who were shepherding the company through this process will now have to deal with an issue of mistrust (something they’ve seen before), but the bigger point here is that this whole story highlights the massive importance of trust up front – in relationship building, in corporate management and governance and certainly when it comes to investing.
This last point can be examined from a few different angles. Investors who are taking direction from givers of advice need to have significant trust – that goes without saying, I think. No one is going to entrust their life savings to someone where trust is lacking.
Interestingly, though, trust is also at the very foundation of the investment process. That’s because when you invest in the shares of a business, what you really are doing is investing in the leadership and management team to ethically and responsibly grow the equity value for you – the shareholder.
Even after you have done all of your analysis and due diligence, at the end there is a leap of faith the investor must take. If you can’t trust management and directors by virtue of their actions and words, how can you have trust that your investment is in good hands?
Besides the safety and well-being of our families, our finances and investments require trust in anyone we let into that part of our lives more than anything else. It is our livelihood and the measure of our ability to live the lives we choose. For Facebook to be perceived as falling down in a test of trust in this fundamentally important domain is really ironic.
The Foundation Needs Repair
From my perspective, this is now part of the battle that Facebook has to wage. Trust has been tarnished. Whatever level of trust they have built among their user base over time and in their brand, I have to think has now been set back, at least a little.
Surely, there are a significant number of users among their new investor base. And, that Facebook’s IPO, a most significant and memorable event in any company’s history, appears now to be mired in a controversy of trust means that they now have a longer road back to the level of trust they had even a week ago.
Now that the shares are changing hands in US markets, another question is whether the valuation on the business was fair. But, what is the market value of trust?
I’d say it’s immeasurable. How about you?
Subscribe to Trevor’s new bi-weekly email of insight into trust-based investing to launch on May 31.