Novelli, a Distinguished Professor at Georgetown University and Head of the Business for Impact center at Georgetown, has had a long and distinguished career in advertising and marketing.
But what made his life and story different? He went out of his way to apply his expertise to products, services, businesses, and causes that had a redeeming social purpose.
So, what might Novelli have to say about the social value and purpose of Robinhood, the upstart retail financial services and brokerage firm?
Well, my guess is, he wouldn’t have MUCH AT ALL to say about their social value – just as I have not much at all to say about their ethical value – after the congressional hearings this past week.
Some background information, in case you haven’t seen my previous Robinhood blogs/posts or don’t know much about the Company:
Robinhood was started in 2013 by founders Vladimir Teney and Baiju Bhatt. The company has the mission to “provide everyone with access to the financial markets, not just the wealthy.” It advertises on its web site “Commission-free investing, plus the tools you need to put your money in motion.” It is reported that it has around 13 million customers.
Sounds “good” so far, right?
Not so fast.
When you look deeper at Robinhood (as Congress and many others have recently due to the GameStop trading fiasco), you see a brokerage firm that prides itself with having “commission free trading” but for the longest time failed to mention that it earns revenue (i.e., receives kickbacks) from market makers as “payment for order flow.” (Introducing a new acronym for you: PFOF.) Although the PFOF practice is legal (for now), like all kickbacks, the payments create an inherent conflict of interest. Do I route orders to obtain the best prices for my customers or where I get the highest kickback?
Let’s face it: PFOF is just plain not “good” for business.
Okay, so what about the “tools you need to put your money in motion”? I think it is safe to say, there is universal agreement that financial education, advice, and counsel is critically important for all investors, particularly the new generation of investors that Robinhood attracts. Well, Robinhood barely gets mentioned with brokerage rating services, and when they did, it was for “lack of trading tools and research.” Oh, and in a very recent survey they were distinguished by being rated lower than Wells Fargo (with a 74% unfavorable rating). Evidently, not “good” business practices after all.
Finally, you would think systems security and reliability would be a big deal with a new financial services firm… Why? Well, because it is a BIG DEAL!! But for Robinhood – it is clearly not. Check out the 2019 customer data security breach or the 2020 glitch in options trading systems (“systems-wide, all day outage preventing users from performing most actions”).
And last but definitely not least (and this is definitely not all – just google “Robinhood Issues”), there was the 2021 short squeeze when Robinhood restricted trading on certain stocks because it did not have the money on hand to cover stock trades (as regulations require). Not “good” customer-focused business practices.
So, maybe Robinhood has been extremely successful in “providing everyone more access to financial market” but flat out – it has done it in an irresponsible way.
There is nothing “good” about it.
Now back to the book I started the blog with…
The message from Good Business and an examination of Novelli’s life and career:
You can choose to be a part of a business that has socially responsible values and purpose.
You can be successful in business (and life) by conducting yourself in a responsible, ethical, and caring way.
As the saying goes (it’s in the Novelli book):
“You can do well by doing good.”
If only Robinhood leaders would embrace this message.
Grab my book, Becoming The Everyday Ethicist, and check out Chapters 6-10 which are ALL ABOUT Organizational Ethics and what companies need to start doing TODAY. What Robinhood needs to start doing TODAY.
Need Ethics CPE? Book your virtual 1-hour, 2-hour, or 4-hour Ethics training with Jo today! Email Jo@AuditConsultingEducation.com.
Amanda “Jo” Erven, CPA, CIA, CFE, is the President and Founder of Audit. Consulting. Education. LLC. After a successful career in external/internal audit and accounting, Jo is now an active Internal Audit Strategist, Management Consultant, Higher Education Professor, Author, and Trainer/Speaker, providing Continuing Professional Education (CPE) hours, live and virtually, to organizations across the globe. Jo’s motto says the most about her personal and professional outlook: “Good things come to those who wait… but don’t. You deserve better than good.” Every one of her books and presentations focuses on that proactive stance, and how we can immediately connect our actions to our values.
