Robinhood Acted in Alignment with its Mission and Customer Interests 

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Robinhood Acted in Alignment with its Mission and Customer Interests 

New organizational leaders rapidly learn that it’s impossible to please everyone all of the time. As the late Jack Welch, the famed former chairman and CEO of General Electric, famously said: “Leaders have the courage to make unpopular decisions.”

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If Vlad Tenev, co-founder and CEO of the online financial services company Robinhood didn’t know that fundamental leadership lesson before, he amply knows it now. Over the past week-plus, Robinhood has been heavily criticized by some customers, media members and politicians for its decision to suspend trading in several highly volatile stocks, including GameStop and AMC. “Beyond absurd,” said Rep. Rashida Tlaib, D-Mich., a member of the Financial Services Committee, in one of the milder reactions.

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Despite the ire Robinhood has aroused in some, the fact is the company acted in alignment with its stated mission — “to democratize finance for all.” Whether or not some Robinhood customers and politicians liked its decisions, these decisions were made with the best interests of all of the firm’s customers, and its mission, in mind.

How Robinhood Acted In Alignment With Its Customer Interests

Let us quickly look at the two main storylines surrounding Robinhood and the trading of the two most volatile stocks in the stock market last week, GameStop and AMC.

  1. Added capital requirements from the National Security Clearing Corporation (NSCC)

In order to allow its customers to purchase shares in GameStop and AMC, frequently on margin (brokerage loan), Robinhood needed enough underlying assets to cover the market risk of these transactions. Thus, when the National Security Clearing Corporation (NSCC), the national clearinghouse for stock trades, asked Robinhood to put up as much as $3 billion to cover the risks of its customers trading in volatile stocks, Robinhood needed to comply or potentially be shut down.

During this time, Robinhood’s operations team, focused on the company’s mission of democratizing finance, did “what they could to make sure we could remain available for customers,” said Tenev, in a Jan. 31, 2020, interview with Tesla CEO Elon Musk.

For Robinhood to “democratize finance for all,” requires the company to be available to serve all of its 13 million customers, not just those engaged in trading volatile stocks. For Robinhood to continue serving its customers and mission, its decision to secure appropriate financing to cover an unforeseen event was clear and easy.

  1. Restricting purchases of volatile stocks such as GameStop and AMC

As Robinhood secured financial backing to meet the NSCC’s margin requirements, it also needed to make certain that the vast majority of its customers could use its services — again, democratizing finance. Robinhood’s decision to restrict trading in GameStop and AMC, tightly at first and then loosening, enabled the firm to, eventually, serve 99.9 percent of its trades.

Democratizing finance, as Robinhood seeks to do, means both working within regulatory requirements to allow as many people as possible to benefit from finance, and ensuring that all of its customers have access to the financial markets. Robinhood’s leadership, during a rough and unprecedented time, aligned itself to its mission to make the tough decisions needed to serve its customers.

Some Robinhood customers and politicians were not and still are not happy with the company’s decisions. Class-action lawsuits have been threatened, and some members of Congress are demanding hearings. But sometimes it’s better to do what people need and not what they want.

So, what can other corporate leaders learn from the events affecting Robinhood?

  • In times of high stress, even if it seems overwhelming, keep your mission at the center of your decision-making process.Stressful situations, like the NSCC asking Robinhood during the middle of a weekday night to put up to $3 billion toward Robinhood’s credit line, can put leaders in an immediate reactionary mode of rushed thinking. Instead, when leaders can keep a calm head in the face of turmoil and retain their purpose at the center, they can guide their organization forward in a positive manner.
  • Get your organization aligned with its purpose as much as possible before ”unforeseen stress” presents itself.Robinhood clearly aligned itself arounds its mission and the interests of all of its customers. In doing so, Robinhood adhered to three of the most important principles around organizational alignment:
  • Accountability and empowerment: Robinhood employees held themselves accountable to the company’s mission and customers. As evidenced during the NSCC’s late-night asset request, Robinhood staffers were empowered to take the steps needed to fulfill this request.
  • Communication: Handling Robinhood’s operational needs required open and honest communication not only internally, but also with external funders that elected to provide Robinhood with the cash to meet the NSCC request.
  • Teamwork: Clearly, multiple departments within Robinhood collaborated to understand its issues and implications and then executed on their task.
  1. Be ready to make decisions that support what core customers need, versus just what they want.

Customers at the start of the 20th Century wanted faster horses. They instead got cars. Some Robinhood customers wanted to trade in volatile stocks without any restrictions. They needed an organization like Robinhood that did not see itself as just a facilitator of trades, but a democratizer of finance and a vehicle to help keep these same people from getting hurt due to market volatility.

Did Robinhood make the right decisions to adhere to its mission and serve the interests of all of its customers during its severe operational challenges? Despite several highly vocal naysayers to the contrary, the answer appears to be “yes.” Immediately following this days-long episode, Robinhood saw record demand for its online trading app, with more than 600,000 downloads in a single day. Sometimes, seemingly unpopular decisions can ultimately have a silver lining.


About the Author

Art Johnson is CEO of Infinity Systems, Inc., a management consulting firm where he helps leaders identify and rectify organizational misalignment. Previously, he implemented a strategic plan to improve alignment at Medtronic, the world’s largest medical technology company, enabling it to grow top-line revenue by 13 percent year-over-year in a flat market. His new book is The Art of Alignment: A Data-Driven Approach to Lead Aligned Organizations (Made for Success Publishing, Feb. 23, 2021). Learn more at orgametrics.net/theartofalignment.

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