On SVB, Social Media and Under-Reacting

GUEST OPINION

On the same day that Silicon Valley Bank went belly up, I listened to a podcast where the guest, a CEO, talked about encouraging leaders to practice under-reacting.

By Rob McClinton

The idea is to avoid making irrational, emotion-driven decisions so that a broader set of alternatives can have time to present themselves.

When it comes to SVB, under-reacting would have done everyone a lot of good, certainly the bank and its employees. It might have given the management team the time needed to secure additional funding and avoid the whole situation. And it would have spared a whole lot of people the angst of wondering if they could make payroll.

Now, there are plenty of things that didn’t help. Like the CEO asking everyone not to panic, using the exact language most likely to induce or validate panic. It also didn’t help that key management team members sold shares as things were getting tough, before the public knew things were getting tough.

Those appear to be unintended but certainly self-inflicted wounds that degraded confidence.

But one of the factors that most undercut effective under-reacting was communication in the form of tweets and emails from Venture Capitalists to their portfolio companies encouraging them to pull their deposits. It’s hard to ignore the advice of the people who gave you the money in the first place. Very hard. And if you’re on Twitter, it’s hard to ignore seeing this advice given.

These messages made under-reacting a liability. After all, a run on a bank isn’t a race against the bank’s management or the regulators. It’s a race against the other depositors to see who can withdraw their funds before the bank runs out of cash. Good luck if you are traveling, offline, or just thoughtful. Until the Fed decided to cover everyone, thoughtful and deliberate under-reacting was a fool’s choice.

That should never be the case when information is known and options are being explored.

There’s a lot more ink to be spilled by people better equipped to speak to this than I am. After all, this failure is historical, so it’s destined to become another business fable, retold in classrooms, magazines, and the business equivalent of Lifetime Movies (whatever that might be) for years to come.

Nevertheless, of all the lessons learned from this collapse, an early review of different articles suggests agreement is coalescing around one key point: it didn’t have to happen if everyone had just remained calm… and off social media. (This part is just mine, there’s no agreement on that point yet).

Rob McClinton is the board president for Innovate Pasadena and CEO of Small World.