Ozy Media’s Governance Flop

You may have missed this, but last week a media business with oodles of funding from Silicon Valley closed up shop because of flawed leadership behavior that culminated in accusations of fraud. Which gives us yet another opportunity to talk about the importance of board governance to keep leaders’ ethical conduct correct.

The media business in question is Ozy — and like most of you, I’d never heard of Ozy until the middle of last week. That’s when the New York Times published an astonishing article that one of Ozy’s senior executives pretended to be a senior YouTube executive, while on a conference call trying to raise $40 million from investment bankers at Goldman Sachs

The details are that back in February, Ozy had arranged a video call with a team of Goldman Sachs bankers in pursuit of a $40 million round of funding. Ozy had said that one participant would be Alex Piper, a senior executive at YouTube; to tell the Goldman team about how the videos that Ozy posts to YouTube rack up millions of views. 


Except, Piper was never aware of that video call. His presence had been fabricated by Ozy co-founder Samir Rao — who, minutes before the appointed hour, emailed the Goldman team pretending to be Piper, asking to shift to a telephone conference call. And then Rao joined that phone call pretending to be Piper, proffering all sorts of piffle about Ozy’s supposed success. 

News of Rao’s bizarre behavior was published on Sunday, Sept. 26. By mid-week other mainstream media had jumped onto the mystery of Ozy. They questioned whether the business, founded in 2013 by former cable news anchor (and one-time Goldman employee!) Carlos Watson, had any sustainable, profitable business at all. One of Ozy’s most high-profile employees resigned; investors started filing lawsuits alleging fraud

By Friday, Oct. 1, Ozy announced that it would cease operations and dismiss its 75 employees. Just yesterday, however, Watson went on CNBC to say that Ozy won’t shut down after all — although that seems to be news to everyone else involved with Ozy, including the employees who still have no jobs and the board chairman who bolted last week

Let’s roll up our sleeves, compliance and governance professionals. As nutty as Ozy’s problems are, we have a few deeper points to ponder here.  

Governance and the Superstar Effect

First, we have to wonder about how Watson and Rao managed to raise boatloads of money from deep-pocketed investors with such a flimsy business model and even more questionable performance. 

Watson raised more than $80 million during Ozy’s lifespan, from investors such as billionaire philanthropist Laurene Powell Jobs (widow of Steve Jobs), German publishing giant Axel Springer SE (which paid $20 million for a 16 percent stake in Ozy in 2014), and billionaire hedge fund manager Marc Lasry

Well, what due diligence did these investors perform when evaluating Watson and his gossamer promises of a new media business? How did they impose their interests as members of Ozy’s board? (Powell and Lasry served on the board; as did Axel Springer chief executive Mathias Döpfner and private equity veteran Louise Rogers.)

Those are crucial questions to ask because they spotlight a glaring weakness in the world of Silicon Valley startups: that for some high-flying darlings with charismatic founders like Watson, there is no board-level oversight. Those superstar founders bowl over a bunch of previously rich people, who pour money into the business without competent consideration of the risks. 



That’s what happened with Theranos, another one-time Silicon Valley darling founded by one-time superstar founder Elizabeth Holmes. Professional, sober-minded venture capital firms avoided Theranos like the plague, so she raised money from rich individuals such as media mogul Rupert Murdoch, software mogul Larry Ellison, and investment mogul Tim Draper. She stocked her board with men such as Jim Mattis, Henry Kissinger, and George Schultz — old men with no experience in biotech or business. 

Ozy’s misgovernance bears striking parallels to Theranos. We don’t see too many high-flying darlings with charismatic CEOs, but they do happen. Mostly they arise from Silicon Valley and flare into failure several years later — but occasionally some grow into enduring businesses. One example that comes to mind is Wynn Resorts, which suffered a near-death experience in 2018 when then-CEO Steve Wynn was accused of a career full of sexual assault. Another is the Dallas Mavericks, also left reeling in 2018 after similar allegations were leveled against its long-time CEO Terdema Ussery

To state the obvious: the fraud at Theranos and the misconduct at Ozy are very different from the abusive cultures that festered at Wynn and the Mavericks. But for all of them, one fundamental flaw was weak governance by weak boards, bowled over by larger-than-life CEOs. 

Most compliance and audit professionals understand that the three sides of the Fraud Triangle — opportunity, rationalization, and pressure — are crucial ingredients for corporate misconduct. As my friend and anti-fraud thinker Jonathan Marks has said many times, however, misconduct driven by titanic executive egos also depends on arrogance and competence. That is, the executive believes normal boundaries of ethics, the law, and common sense don’t apply to him or her. 

Strong board governance is the check against such impulses. I don’t see such governance here. 

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