The Problem with Zynga

Earlier this week, Zynga CEO Mark Pincus made headlines by telling some of the company's early employees to give back some of their stock options -- or get fired.

The media blowback was quick and very, very, toxic. The Wall Street Journal ran a story (now paywalled) that made Pincus and Zynga look sleazy at best, and at worst cruisin' for a legal bruisin'. The consensus was that Pincus is a greedhead hell-bent on screwing employees out of their hard-earned equity stakes.

It turns out this is complete nonsense.

The Truth About Zynga's Stock 'Scandal'

Fortune editor Dan Primack took a closer look at what's really happening at Zynga, and it isn't nearly as nefarious as people make it out to be. Pincus is basically allowing under-performing employees to stay on at Zynga, in different roles and at lower salaries, where they might still make a contribution.

In return, he'd like them to give back some of the unvested shares they were promised for doing their original jobs. As far as I'm concerned, that sounds like a better deal than being canned for incompetence and losing all of your unvested shares.

So this isn't an ethical problem, much less a legal one. But it is definitely a PR problem. And it's one that Zynga's management should have seen coming.

I can't imagine that the stock give-backs would make much of a difference to Zynga's big-picture IPO plans. That leads to one question: Why would Zynga risk such an ugly PR drubbing this close to its IPO? Why didn't somebody realize that this story would spin out of control? What were they thinking?

The answer: They weren't thinkiing, and they still aren't thinking.

The Memo from Hell

Earlier today, Pincus threw gasoline on the fire by sending the following email (reprinted here verbatim) to Zynga's employees:

Team,

The wall street journal posted a story last night (copied below) which paints our meritocracy in a false and skewed light. The story is based on hearsay and innuendo which is disappointing but is to be expected as we move towards becoming a public company.

We have nothing to hide in our past and present policies and I am proud of the ethical and fair way that we've built this company.  As many of you have heard me say -- we're building a house that we want to live in.

Being a meritocracy is one of our core values and it's on our walls.  We believe that every employee deserves the same opportunity to lead. Its not about where or when you enter zynga its how far you can grow. This is what our culture of leveling up is all about and its one of our coolest features.   

we want everyone to put zynga first and contribute to the overall success of our company and all of you have.

thanks,

mark

A few thoughts:

First, I can't believe Pincus put his name on this. It's packed with brain-dead buzzwords, glaring typos, and bad grammar. This is what you'd expect if Beavis and Butthead handled your crisis PR. 

Second, the email does absolutely nothing to defuse the public uproar. It's a bland, substance-free assurance that all is well and there's nothing to worry about. It's the kind of swill that will lower your IQ simply by laying eyes on it.

Finally, neither of these things would have been a problem if the email had stayed confidential. It didn't -- in fact, it leaked almost instantly. Anyone on Zynga's PR team who expected it to stay confidential should be fired for incompetence. Anyone who didn't expect it to stay confidential and considered it an appropriate public statement should be fired for congenital stupidity.

Has Zynga Poisoned Its Recruiting Pool?

So Mark Pincus does have a serious problem here. He allowed a completely preventable crisis to impact Zynga's IPO plans and possibly cost the company a great deal of money. What may be just as bad, a lot of developers -- the pool of talent Zynga will rely on to drive its future growth -- drew the wrong conclusions from the original story. There's now talk that Zynga can't be trusted and that new hires would have to be nuts to accept a stock-option grant from this company.

Eventually, cooler heads will prevail here, although the damage -- some of it possibly permanent -- has been done.

If Pincus is serious about Zynga's meritocracy, he needs to step up and fix this. Whether through incompetence, arrogance, or ignorance, he was allowed to make a terrible decision at the worst possible time. And then he was allowed to put his name on that dreadful email memo.

Every business leader needs trusted advisors who can keep this kind of stuff from happening. Pincus either doesn't have that or doesn't think he needs it. Either way, his company is now paying the price. That's a lesson any business, of any size, can take to heart.