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Groupon: CEO Andrew Mason Isn't the Only Problem


Groupon's problems go beyond Mason's performance in the CEO role and extend into areas that are completely beyond the ability of any board of directors to control.

It's a Machiavellian/Darwinian kind of world, and there's no oversight or guidance from the investment bankers once the IPO has been completed.

The CEO isn't the only person responsible for a premature IPO. Indeed, it's the board that signs off on that decision, and on the terms of an IPO in general. And it's the board that is responsible for ensuring that it has a reasonable long-term view of the company's strategy and business environment.

To the extent that Groupon's post-IPO woes were foreseeable, directors should have considered them when deciding to go public, and adjusted their plans accordingly. To the extent that they weren't, such as the departure of some key executives, the board members need to ask themselves with ruthless honesty whether those can be attributed to Mason. Were personality conflicts or poor management responsible for those departures, or poor judgment on Mason's part responsible for its accounting problems? Did he foresee the risks that lay ahead but fail to disclose them honestly to the board? If the answer to the above is "no," then it's hard to make a case that Mason alone is responsible for the company's plunge in share price.

Part of the problem, indeed, lies with irrational expectations on the part of both the company and its shareholders. For whatever reason, the dot-com debacle has failed to convince investors that it's not possible to make a quick killing from a new business model. Too many speculators still believe that it's OK to invest in a newish business run by a 30-something CEO in hopes of doubling their money.

When investment bankers take an IPO candidate like Groupon on the road, they are counting on that kind of irrational exuberance to drive demand for the stock, citing intangibles like investor enthusiasm in their pitches to institutional investors. Exactly the same phenomenon was at work in Facebook's (NASDAQ:FB) IPO faceplant.

Groupon may be a really bad investment, even at its recent lows. But Mason is not the only culprit. The responsibility is more collective in nature. It extends to the company's directors, its investment bankers (who whipped up demand for the IPO, as they pursued the underwriting fees and the league table credit) and to investors who were willing to pay $20 a share for stock in a company involved in an industry with very little track record and virtually no competitive "moat."

Because the daily deals business sounded so convincing, because it looked like a new new thing and not just a plain old coupon business, because we all wanted to find some kind of growth in a slow-growth stock market, many of us put our sober second thoughts to one side. Once again, we were willing to believe that pots of gold lie at the end of rainbows. And once again we learned that's rarely if ever true.

Editor's Note: This article by Suzanne McGee originally appeared on The Fiscal Times.

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Follow The Fiscal Times on Twitter @TheFiscalTimes.
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