Robinhood and the GameStop Controversy: A PR Perspective

PR Experience

From my tenure in the Marine Corps, where I navigated the treacherous waters of public affairs and crisis management, one principle stood out: maximum dissemination, minimum delay. Since transitioning from the disciplined ranks of the Marines to the corporate world, this is the first time I’ve seen this rule strictly applied. Despite the earnest protestations of public relations professionals and educators that “spin” is a thing of the past, my experience often involves observing masterclasses in artful obfuscation, thinly veiled as truth. Sometimes, it isn’t even spin; it’s simple avoidance. Sooner or later, however, every company faces a reckoning driven by the pressing need to salvage sales and restore dwindling public trust.

January 2021 an unforgettable month in the annals of investing. An unlikely David vs. Goliath story unfolded, with small investors congregating on Reddit pitted against large hedge funds, with GameStop, a beleaguered retailer, caught in the crossfire. As the dust settled, Robinhood, the popular trading app, was entangled in a sprawling public relations crisis.

Robinhood’s cornerstone proposition has always been to “democratize finance for all.” Yet, when it curtailed trading of GameStop and other “meme stocks,” the company was viewed as colluding with the Wall Street behemoths against the average retail investors. This seemingly renegade move ignited outrage from users and politicians alike.

As per a report from CNBC, GameStop’s shares skyrocketed more than 1,500% in January 2021 due to a surge in buying by retail investors spurred by social media platforms like Reddit.

Robinhood’s initial response could have been better. The explanations about the trading restrictions were seen as opaque and defensive, doing little to allay the mounting public concern.

As the crisis deepened, however, Robinhood started steering the ship towards calmer waters. Robinhood’s CEO, Vlad Tenev, took center stage, making several public appearances to elucidate the situation. He explained that the decision was prompted by the need to comply with regulatory capital requirements, not to favor large hedge funds. While Tenev’s responses occasionally drew criticism for evasiveness, his willingness to confront the issue showed accountability.

It’s worth noting that evasive or perceived inadequate responses from CEOs during crises aren’t unprecedented. Consider Facebook’s CEO, Mark Zuckerberg, whose delayed and vague response to the 2018 Cambridge Analytica scandal triggered a global uproar and a significant loss of user trust. Similarly, Tony Hayward, the former CEO of BP, was castigated for his dismissive and insensitive comments following the Deepwater Horizon oil spill in 2010. His actions deepened the PR disaster, leading to his departure from the company.

While Tenev’s handling of the situation garnered criticism akin to Zuckerberg’s and Hayward’s, his proactive engagement with the public and his attempts to explain the situation differentiated Robinhood’s crisis management. The company managed to weather the storm without a change in leadership, unlike Facebook and BP, which experienced significant reputational and operational consequences.

In an interview with CNBC, Tenev said, “Our goal is to enable customers to buy whatever they want, but this was a risk-management decision we had to make.”

The Robinhood saga underscores the importance of aligning actions with brand values and maintaining clear and transparent communication in a crisis. It’s critical to manage the narrative, but PR isn’t solely about spin – it’s fundamentally about what a company does and what it represents.

Let’s recall the wisdom of Warren Buffet, one of the world’s most successful investors, who famously said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”