Pivot - Facebook's data breach, Elon vs. SEC and the Kavanaugh hearings

Episode Date: October 5, 2018

On this episode of Pivot, Kara and Scott talk about: (01:20) Facebook's massive data breach; (06:05) Elon Musk's $20 million SEC settlement; (12:43) Wins of the week: Jeff Flake, Amy Klobuchar and Jeff Bezos; (20:47) Soul-sappingCycle and the Wizarding World of Harry Potter Learn more about your ad choices. Visit podcastchoices.com/adchoices

Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. And when it comes to leading a successful business, time and again, entrepreneurs and executives from across industries share this incredibly simple secret. Turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions. No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about how Trinet's industry-tailored HR can work with your business at trinet.com. That's T-R-I-N-E-T dot com.

Hi, everyone. This is Pivot from the Vox Media Podcast Network. I'm Kara Swisher, editor-at-large of Recode. And I'm Scott Galloway, professor of marketing at NYU Stern School of Business and founder of Gartner L2. And also kind of the Elon to Cara's— No, no, I'm sorry. I'm the Kimball. You're the Elon. I'm here because of the cowboy hat and because you like me, let's be honest. Yes, that's it. That's about it, except 100% less marijuana smoking.

But we were talking a little bit earlier this week than we usually do. Things might change by the time everyone hears that. But, Scott, so wise predictor of outcomes. What's happening this week that's going to keep haunting the world of tech and business for months to come? So let's start with the big topic. Yeah, Facebook, the data breach. What are you hearing? What's the skinny? Well, I think it's a with the big topic. Yeah, Facebook, the data breach. What are you hearing? What's the skinny?

Well, I think it's a lot worse than people. You know, it's really interesting. Kavanaugh has sort of pushed everything off the front pages. And if you can imagine a big data breach like this not being that big a deal, people just jump past it because of the news cycle is so crazy. It's kind of fascinating. I think it's a major thing. And once again, Mark Zavarroza apologized, said he's going to do better next time.

And I think it was problematic as far as I can tell. Yeah, the one thing you know about it is it's only going to get worse, right? A couple of things these guys never say is, one, your privacy standards were accidentally strengthened. You never hear that. And two, you never hear, oh, it wasn't as bad as we'd originally reported. My understanding is he's already come out a second time. And on that call, he sounded tired. And my sense is he shouldn't feel that way.

He should sound scared. This is just getting, you know, I wrote a blog post on this. I feel as if Facebook's turning into the information age KGB minus the charm. You know, at least the KGB has a code. They're loyal to their country. They're loyal to each other. As far as I can tell, the only glue here is boundless greed and a willingness to lie over and over. Is that too much, Kara?

Is that too much? Yeah, it is. But here's the thing. Last week, you called it a great buy. That's the sad part. I still think it is. Because why? Explain that to the people.

Because we live in a capitalist economy. And people would rather we now worship at the altar of innovators and billionaires. People are going to be outraged by this. There'll be some foot stamping in Congress. Maybe something happened, maybe won't. And they're going to announce the best numbers ever. They're going to continue to grow at 30% a year. Despite this hacking and then the phone number scandal too.

Explain that. Explain that they use your phone numbers. So two-party authentication. I want additional security. Facebook says fine. Right. Give us your phone number. You give them your phone number.

And then we found out that Dunkin' Donuts was using those phone numbers to cross-reference and target us. So if Dunkin' Donuts has your phone number, they can say, hey, we have Kara's phone number. Can you, do you have it? And they say, oh, yes, we did. So these people, I mean, technically you think, this isn't that bad, but it reflects. Oh my God, are you kidding? I didn't want to give them my phone number for that. I gave them so I could have better security on this service that has data breaches. Exactly. It's the general gestalt. You know, they say the saying is, if you're not paying for something, you are the product. And that's how they treat us. They treat us like a product that's inanimate. And I just, they aren't showing a certain level of respect, I think, for their consumers.

So from a, look, hacks are part of this world. There's nothing safe really. But the fact of the matter is this is a company that has had so many failures this year that it's hard to count them at this point. And so a hack is – before – when the people are online, they're like, oh, this is just like the Russians. I'm like, no, the Russians wasn't a hack. It was the way – they were using the system the way it was used. This is a hack. What do you do from a marketing point of view inside of Facebook when this stuff is happening? Well, the key to crisis, man, there's only three things you have to remember. One, acknowledge the issue.

We haven't put in place the standards or the guardrails, the protections we should have. Two, top guy or gal, let's take responsibility. They've sort of done that. And then the third thing is to overcorrect. And that is where they have really fallen down is there's nothing resembling an overcorrection here because, I mean, even if they took a page out of Starbucks playbook, they would say, all right, we're closing the network down for a day and just trying to figure out what's going on. They would never in a million years do that. So this will go down, whatever happens to Facebook, it will ultimately go down as a textbook case study in the worst management of a crisis, I think, in modern history. What do you think they do?

Do you think they're—I think they're not self-reflective in any way. I think if—I'm surprised that the mirrors in Facebook show their faces. You know what I mean? They're like vampires. They're so non-self-reflective. That's a good one. I'm trying that one out on the road. That's like—did you see that Twilight Zone when people would see the reflection

knowing they're about to die? Oh, really? No. Yeah, start watching the Twilight Zone. One, A, I told you this last week, start drinking more. No, I'm not watching the Twilight Zone. And B, watch the Twilight Zone. I don't want to be creeped out. I don't have enough creepy things in my life.

So in general, I think these people don't, like, I know it feels like oncoming, but as usual, they feel like victims. Like, they act like victims versus, it's a little like the Kavanaugh people. They're like, oh, we're being attacked rather than the fact that they're going for a very important job. And so I think it's really disturbing that they have an attitude that they're being attacked. And to your earlier point, Mark was the gift that was really the heat shield for the rest of big tech of his tone deaf remarks when you could argue that Google is probably the biggest offender or the scariest one.

And now Kavanaugh is the heat shield for Zuckerberg because this would have been huge news had 20 million people not tuned in to find out how much Mark Kavanaugh likes beer. So it's— I think Mark likes beer. They are the luckiest people in the world right now. I wonder if it'll stay that way. I wonder if it'll start to bubble up. I think people get exhausted by it. Now, speaking of that, speaking of sort of CEOs losing their sheen, because I think you think they worship all their billionaires. I think it's

going the opposite direction. You have Elon Musk settling with the SEC. Yeah. And what, well, I just have what I've read. Have you, do you know anything here? I do. Do you have any behind the scenes around what happened with the, between the board, Elon, what's going anything here? I do. Do you have any behind the scenes around what happened between the board, Elon? What's going on here? Because initially they rejected the first settlement out of hand. They did. They did. And then they didn't.

And then they didn't. I think some of it was some of the terms were – some of the slight terms were more onerous, which was not being CEO and other things like that. And I think that he wanted to remain CEO and he certainly has been willing to accept someone above him because he really just runs the company anyway, right? and he certainly has been willing to accept someone above him because he really just runs the company anyway, right? And I think he probably realized what a mess it would be and what happened to the stock. It went down. And I think they're actually looking at some good numbers too.

Things are starting to turn around for that company in terms of financials, even though they owe. I mean, there's been a number of really amazing stories about the financial situation there, which is they really have a debt overhang and they're using capital at a billion dollars a month, something like that, some number, and they think they just have three billion left or whatever. But they're showing some good signs that this is starting to work and they're starting to make money on these

cars. And so I think this idea of just rolling the dice at this point probably was not a good one. I think adding more people to the board will be interesting. It's just I never think boards are particularly effective around these charismatic CEOs anyway. But I don't know. I just – I think he's sort of – I think he had a come-to-Jesus moment. Yeah, this was a smart trade for him. This was – this would have been a great settlement had the SEC done – they stripped him of the wrong title.

He should have been stripped of his CEO title, quite frankly. No, he wouldn't have put up with that. This is an individual. Well, then he doesn't put up. I'm not sure that I agree with it. What does he got? He got a CEO of Fiat Chrysler. I think Musk needs Tesla almost as much as Tesla needs Musk.

And the bottom line is while we're a nation of innovators, we're also a nation of laws. Tesla needs Musk. And the bottom line is while we're a nation of innovators, we're also a nation of laws. And this guy waved his middle finger in the face of us when he basically committed blatant market manipulation and then tried to elicit the board to cover up his— From what I understand, though, he doesn't think he did anything wrong. People inside think he didn't do anything. He thought he had met with the Saudis and the Saudis. He was taking them at their word, and that makes him kind of a little bit willfully naive.

But he thought he had pretty much had a deal that they were interested, and he had several more meetings than had been talked about, and he thought it was further down the line than it was, and obviously he misunderstood, or people, you know, that's what I understand from his side, is that he thought he had a deal, so he didn't think he did anything wrong, he was just wanted to tell all of investors when he was telling the bigger investors, and so that's their story, and they're sticking to it kind of stuff. Yeah, I would agree. That's their story.

Well, it's not out of the realm of possibility that he thought he had a deal. I have to say, I think he hears what – these people hear what they want to hear, and I think he just assumed he would be able to get the Saudis to cough up the dough. And it doesn't matter. He paid $20 million for a tweet. That's pretty much it, which is an enormous amount. Except who says Twitter can't make money? I mean, the federal government. Yeah, but it's all relative, right? This is $20 million from a guy who got weepy about being almost late for his brother's wedding because his Gulfstream

650 ER didn't get him there in time. 20, this is a guy worth $20 million. So imagine you getting a fine. Well, I'll do one thousandth of my total net worth is not a big fine. So this is all relative, $20 million to the company. Okay, big deal. The most important thing here is the one you mentioned, two new independent directors, because this is not only a personal failure, this is a failure of governance. A board's job is to hire and fire the CEO, but until they fire the CEO, they're supposed to be there to support and protect him. And the fact that no individual on this board could get through to him to say, hey, shithead, stop tweeting, or that he would listen to, means he has an enormously

weak board. And I don't know if you saw the non-charm tour that his brother Kimball went on on CNBC, but it literally validated your worst fears about the board of Tesla. I mean, this is a guy. He showed up to CNBC in a cowboy hat. He made no sense. He's like, okay, there literally is no adult supervision at this company. My brother is doing great, and he just brought on Jerome as his president of automotive operations. I mean, he's doing a great job structuring the company. Mostly right now the focus is deliveries.

We are trying to get great, very happy customers with Model 3s in their hands, and that's the total focus. And it's going to be an exciting month for us. I think the question is who they're going to pick, and who they're going to pick as chairman, which will be interesting. I have some ideas. Who are your ideas? I have some ideas, too.

Indra Nooyi would be interesting. I think Gary Cohn. That's a great one. Pepsi. That's a great one. That was on my list. Oh, sorry. Gary Cohn.

Boom. Gary Cohn from Goldman. Gary Cohn from Goldman? Yeah, I like it. I just think about it. Basically, the guy on the Trump administration who couldn't handle people, who could handle white nationalists, but couldn't handle tariffs. Well, he didn't. That's it. Tariffs, I'm out of here. No. Anyway, he would be, I think he would be an interesting choice. I think that's one of the names. What are your names? Well, I liked your, you know, the Pepsi CEO, I think he would be an interesting choice. I think that's one of the names. What are your names? Well, I liked the Pepsi CEO. I think Jeffrey Sonnenfeld from the Yale School of Management. I think Jeffrey is turning into the conscience of capitalism, and he would be a great individual.

Not going to happen. No way, right? Someone else? What about Mark Field, CEO of Ford? No. No, former CEO. Okay, there you go. I'm out.

I'm done. All right. CEO Ford. Yeah. No, former CEO. Okay, there you go. I'm out. I'm done. All right.

I tried Alan Mulally, but I think they thought he was too old school, who ran Ford and then was over at Boeing. He'd certainly have the chops, but they think he's too old school. I was thinking. But I like Alan Mulally. He's very funny. Anyway, all right. So, but essentially, Elon's gone through the, he's going to be just fine. Well, that's the problem.

Literally, you can imagine a scenario where in six months, absolutely nothing has changed. Nothing has changed. All right, we're going to take a quick break and when we get back, we'll be talking about the wins and the shakeups of the week. Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. And when it comes to leading a successful business time and time again, entrepreneurs and executives from across industries share this incredibly simple secret, turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions. No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about Trinet's industry-tailored HR and how they can work with your business at Trinet.com. At Trinet.com.

That's T-R-I-N-E-T dot com. Incredible starts here. Okay, we're back. Okay, Scott, the Supreme Court and women at large not having a great week, but tell me who is your win of the week? I want something positive. I want something positive. Who is having a good week? I think that the individual who basically became a viable candidate for president last week was Senator Jeffrey Flake. Flake? What? Really? I thought Amy Klobuchar. I thought Amy Klobuchar would come out of your mouth versus Jeffrey Flake. Flake? What? Really? I thought Amy Klobuchar. I thought Amy Klobuchar would come out of your mouth versus Jeffrey Flake.

Yeah, but no one expected Jeffrey. I think he showed real leadership here. I think the image of him sitting in the elevator and just listening to those women, I mean, that's an – he was in – He looked scared. Come on, Scott. He looked like he was terrified by like a tiny little woman who was just yelling at him. I like that. Yeah?

Okay. He didn't say – What's he going to do? Push the close button? He didn't say this is an improper way to at him. I like that. Yeah? Okay. What's he going to do, push the close button? He didn't say, this is an improper way to handle this. Let's go into my office. He sat there and he took it, and then he listened. I think he was generally moved.

And then he's the guy that hopefully has brought something that these guys are supposed to do, and that's create some sort of bipartisan consensus and deal with each other and have respect for one another. Unless it's a feint. Everyone says that he's done them a favor by letting them lead the investigation. Yeah, there's a bunch of, obviously there's concerns that this is just kind of a ruse and it's not really an investigation.

Trick. Ruse. It's a ruse, yes. I think Jeffrey Floyd basically had the best week of any individual I can think of. Other than Elon Musk, he basically dodged not even a bullet. He dodged a mortar. Yeah, I think Jeff, his name is perfectly chosen I disagree with you completely I think he's been nothing but weak on most of the time and I like I'm glad that he did this but it's as if he should get a medal for

doing his job like I don't get you know what I mean like he's the only non-crazy Republican who wants to show like Lindsey Graham and his giant hissy fits it's that was, that was crazy. That was actually, I thought that was kind of fun. By the way, you forget, Flake really has a number one criteria for any president. He has really good hair. Oh, he does have good hair. He's a very handsome man. He is handsome. He's dreamy.

But here's the thing. He's dreamy. I don't want to hear about your man crushes, Scott. I don't want to. Come on, Scott. I'll raise money for him and I'm a hardcore commie. Not that there's anything wrong with that, but that's enough. Okay.

I think that, I think Amy Klobuchar was the one. I'm going to give another win of the week, but Amy Klobuchar, I thought, handled herself really well. He attacked her ridiculously, and she didn't throw a shoe at his head. You're saying there's never been a case where you drank so much that you didn't remember what happened the night before or part of what happened. You're asking about blackout. I don't know. Have you? Could you answer the question, Judge?

That's not happened. Is that your answer? Yeah, and I'm curious if you have. I have no drinking problem, Judge. Nor do I. I thought she handled it with class, and then she went on and talked about it. And I think she's got the kind of even-handed mentality that you kind of want in a legislator. The question is can she go up against someone like Trump who will scream at her?

I don't think the Democrats are going to put another woman forward. I think they're worried that – I think they're going to end up – I don't think they have the backbone to push a woman to the front. I think it's too bad. We'll see. She's a different candidate. She's very strong. She feels like VP. She feels like she's got vice president all over.

I don't know. I like her for press. I like her for press. Okay, my win of the week is Jeff Bezos with the $15 thing. Yeah, good one. He just dropped that one down. Like, you know, I know you are all over him, but that was a nice move by him. I thought it was – I called him the mogul genius.

He always manages to do that, like always do something. And it's like how can you argue that you got Bernie Sanders tweeting for him, which was sort of a surprise. I know there was a lot of pressure on them on those prices. But it does lead the way for everybody else to – he'll have the best employees. And some people think the minimum wage should go up even higher than $15. But it's a pretty bold move, I think. It's a great move. And not only that, it's a shareholder-driven move

because it's going to force their competitors to match them. And who can't afford $15 an hour better than Amazon? Nobody is the answer. Even Walmart that's averaging about, I think about $11.50 for some of their warehouse workers. So basically just what Amazon has done with fulfillment where they've gone underwater with the largest oxygen tank of free capital

and forced everyone to follow them and then everyone else is drowning. On everything. They potentially could do the same thing here and that is put pressure on every retailer to raise their minimum wage to $15 an hour. So this is this was not only the right thing to do, it was the smart thing to do.

It was. And what was interesting, what Amazon does, which I think people don't realize, is they put moats around everything. They've always been building moats that people cannot cross, and this is another one. People can match it, but they're out there first. They get credit for it. And then just one thing, the data moat, it's a customer service moat, it's a speed thing.

I've just gotten a second home in D.C., and I'm living here. I have to tell you, I've tried to shop retail. I've tried to shop in stores, and there's some great stores in DC and I'm living here. I have to tell you, I've tried to shop retail. I've tried to shop in stores and there's some great stores in the neighborhood I'm in, but Amazon is so easy and so good. The other night I was trying to find a clothes rack for my son and I could not find, I went to like six stores. It was so frustrating. And then I looked on Prime, I was standing there in the bus stop and Prime Now could have had it to me in two hours. And I had it, that's what I had. It was 30 bucks, and it was shocking how easy it was to do that. It was exactly what I wanted, which was really – I'm thinking of writing a column about

it because literally everything in my house I could get from Amazon. I stopped listening. And I hated myself for it almost, too. I stopped listening when you said second home in D.C. I just can't imagine you in D.C. I just don't see it. I love it here. I go to dinner.

Speaking of which, I had a dinner sitting next to the head of Walmart, and he certainly is worried about it. I can't say it was an off-the-record dinner at the business roundtable, but I think he's got some concerns about Amazon, too. And they're trying very hard to step it up, and they have done in a lot of ways. This is Doug McMillan? Yes, Doug McMillan. He's an impressive guy. By the way, Walmart is probably the one company that's landing counterblows on Amazon. Click and collect is probably the one company that's landing counterblows on Amazon. Click and Collect is probably, if you think about the ability to pick up, it's genius from Walmart because what's the best thing about Walmart?

It's their groceries. What's the worst thing about it? Their in-store experience. So Click and Collect their groceries. Boom. Great experience. Yeah. Yeah.

He's doing a lot of stuff, but I still think it's going to be hard. I think he was, in fact, you know, I think they were the cost, the employee – how much employees are going to cost. And this is going to put them in – they're going to have to do something around their associates, which they all have varying degrees of success with this. But it's certainly – but having been in a lot of these stores this week, it's really astonishing how bad customer service in stores are. I was in Target. I was in Best Buy. I was in others. Best Buy is pretty good with the blue shirts.

Best Buy was great. I was just going to say that. It was really great customer service. And in others. Best Buy is pretty good with the blue shirts. Best Buy was great. I was just going to say that. It was really great customer service. And actually, Home Depot does a great job with their golden aprons. And as everyone's rushing to invest in artificial intelligence, I think the gangster move in retail is to invest in organic intelligence as evidenced by what Amazon is doing. People no longer go to stores for product. They go for people, whether it's Sephora and their cast or what have you. But you know what? This is really a hopeful moment because if you look at the tension between capital or the owners and labor, the workers, there's always a tension and it's been a healthy tension

since World War II. In the last 30 years, labor's gotten the shit kicked out of it. So let's hope this is the start of something where we start to see some of that unbelievable increase in productivity, those trillions of dollars and wealth creation begin to finally move into the middle class and workers. I think this is, you know, I really, let's hope, Cara, this is a hopeful moment and this starts to infect. So you like Bezos now after you eviscerated him? Well, you know, a man worth more than the GDP of Denmark raising minimum wage for 15 bucks an hour.

Yay, let's throw him a fucking party. Anyway, so, but look, I do hope, give credit where it's due. And not only that, he was big about it. Did you see,

you retweeted his tweet saying, thank you, Senator Sanders. Why wouldn't he say, thank you, Senator Sanders? I think President Bezos. Oh my gosh, he's smart. President Bezos.

I'm starting it right now. He's smart. There's going to be a big bromance between him and Senator Sanders. It's just going to be, it just going to be so uncomfortable and gross. Jeff, I really like Prime now. I think it's really good. It's really good.

I didn't know you did impersonations. I can do anybody. That's pretty good. Ariana Hoffman. Hello, Bob. Hello there, Scott. How are you? I'm sorry.

Who is that? It's Ariana. Ariana. I could do a lot of people, but I'm not going to do them right now. I'm going to roll them out slowly for you. All right, Scott. It's always a pleasure for the most part, but I have to get out of here. I've got to go order things on Amazon and then do SoulCycle or something like that.

I actually have to go meet my kids. You do SoulCycle? You pay $35 for SoulCycle? Yes, and I love millennials giving me life advice. That is why I go because I love when young people tell me, you know what? If you just pedal harder, you can change your life. You can change your life. Whatever.

They have all kinds of crazy advice from 22-year-olds. And it's my favorite thing because they're all wrong. So I'm thinking of doing my own SoulCycle class where I put Madonna on endless loop. Or Barry Manilow. Something that will just make them sicken. And then I'm going to go like, okay, everyone, you know that relationship? You know you can change? Not really.

Probably not. And your job? It's probably a dead end. You will find out in 30 years when they replace you with someone younger, like stuff like that. You should call the studio Half Empty. No, I'm going to call it soul sapping cycle. And it'll be the most popular, the most popular thing. Anyway, so what are you doing this week?

So more importantly, you didn't ask me about my trip to Harry Potter. It was, you know, that is probably the best amusement experience of its kind. And it was absolutely awful. But what I decided is I'm giving in completely to love in terms of loving my kids. And that's what my 8-year-old wanted. So I put up with something. I put up with nausea, heat exhaustion, and some of the worst food that I've ever eaten. But I've decided, you know, it wasn't that bad because I was with my 8-year-old. And he was just so happy. So it was awful and wonderful at the same time, Kara.

Yep. I love it there. I think it's a really incredible market. They do a good job. For what it is, they do a really good job. It does. It does. And same time, Kara. Yep. I love it there. I think it's a really incredible market. They do a good job. For what it is, they do a really good job. It does. It does. And I had a rather busy week.

I was interviewing Samantha Bee. Oh, how'd that go? What'd she like? She's amazing. Did she ask about me? No. Did she ask? No.

Did she ask about me? Does she know? You brought me up, right? Okay. No. Thanks. Thanks for that. What's she like?

She's lovely. She's very, it's a very sobering, it was a very sober talk, actually. It was about a lot about refugees. It was about the things that happened with her. I'm not going to repeat the word because I don't like it myself. But she – when she called Ivanka the C word and it was good. It was really good. It was a very good talk.

It was quite an excellent talk. And I've got some upcoming talks in New York, which I might invite you to. I'm interviewing Hillary Clinton. You're interviewing Hillary Clinton? Again, for the second time or third. I don't know. I've interviewed her a lot. And what's the venue and why are you interviewing her? In 92nd Street Y in New York because I'm going to let her talk. Two years ago, she's made all these allegations about Russia

and they all came true. And so I'm going to let her take a little lap and talk about that. And then I'm interviewing Eric Garcetti, who's supposedly running for mayor, and Sean Hayes from Will and Grace. I've got a lot of interviews coming up. Oh my God, I am so Kimball Musk. I'm going to cross it. That's what I'm doing this week. All right, anyway. Thanks for listening

to Pivot from Vox Media. Join us next week for more breakdown of all things tech and business. If you like what you heard, please subscribe on Apple Podcasts

or wherever you're listening. Every week on Pivot, we take a sharp, unfiltered look at the technology and media industries and highlight examples of winning leadership. When it comes to leading a successful business, time and again, entrepreneurs and executives from across industries share this incredibly simple secret, turn to the experts for help. That's why small and medium-sized businesses rely on Trinet for human resource solutions. No matter what industry you're in, Trinet tailors strategies for your organization to grow with confidence. Learn more about how Trinet's industry-tailored HR can work with your business at trinet.com.

That's T-R-I-N-E-T dot com. Incredible starts here. Trinet.