The Failure of Fyre Media and Fyre Festival An Essay of Corporate Governance and Ethics PDF

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The Failure of Fyre Media and Fyre Festival: An Essay of Corporate Governance and Ethics

The Failure of Fyre Media and Fyre Festival: An Essay of Corporate Governance and Ethics Fyre Festival became famous around the world for pictures of cheese sandwiches being shared across Twitter. It is one of the biggest scams in pop culture in the past couple years. What was meant to be the new and glamorous exclusive festival for wealthy millennials, became the biggest laughing stock and disaster of 2017 (Huddleston, Tom, 2019). What started off as a great concept and a new trend for others to be jealous of collapsed due to poor management and a narcissistic leader with a lot of greed. This essay will discuss the corporate governance of Fyre Media and the failures leading up to Fyre Festival’s downfall.

There simply isn’t just one definition of corporate governance, it is perceived differently around the world and different situations (Solomon 2013). Corporate governance is to secure and aid the interest of the shareholders (Walker 2009). The most simple definition to date suggests, “the system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity” (Solomon 2013). An organisation would not be able to “survive in the long term if they ignore their stakeholders” (Forbes and Hodgkinson 2014) (Simposon, Justine; Taylor, John, 2013). In the United States, corporate governance is how the organisation is controlled and is a mix of “federal law, state law and a series of codes of various self regulating authorities ranging from the NYSE to the accounting industry” (Schmitz, Andy, 2012).

Stakeholders have the right to raise claims but at

the end of the day it is the shareholder with all the say. This is very prominent in Fyre Media, as Billy McFarland would make all the final decisions, no matter the thoughts that were raised. In corporate governance, there are three main theories that will be discussed in this essay, agency theory, stakeholder theory and shareholder theory. Agency theory, shareholders pass on the running of the organisation to agents (managers), one main issue with agency theory is, agents may not make the best decisions for organisation. These agents can be very egotistical (Boatwright 1999, Solomon 2013). You could argue that Fyre Media was run by this theory as Billy 1

McFarland (co-founder) would hire the best people in the industry to fill managerial roles. Stakeholder theory is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1999; Abdullah, Haslinda; Valentine, Benedict, 2009). Organisations look after their wide range of stakeholders as well as the shareholders (Solomon 2013). Finally, stakeholder theory, this theory is most similar to the way Fyre Media was run and how Fyre Festival was handled. This theory is the prioritization of the shareholders, the running of the organisation is to benefit the shareholders interest (Solomon 2013). Fyre Media was a US company, co-founded by Billy McFarland and rapper Ja Rule (Jeffrey Atkins).

This was an app focused towards wealthy millennials to hire

celebrities for events at a click of a button, to promote the app Billy created Fyre Festival which would feature the biggest names in the music and influencer industry (Huddleston, Tom 2019). Billy hired Grant Margolin as chief Marketing Officer, who later became his ‘right hand man’, although this is the early years of Fyre Media and the very start of planning of Fyre media, this is where it all goes wrong (Mosendz, Polly Bhasin, Kim, 2017). Before Fyre Media, Billy wasn’t well known, he had an organisation Magnesis, a black card for wealthy millennials where they could get entry into the VIP clubs and discounts off the best restaurants in America, with a $250 yearly membership fee (Bloomberg, 2017).

Mangesis was full of empty promises to

customers and later received so many complaints from customers and bad press, that Billy moved on to Fyre Media (Noto, Anthony, 2017). Billy McFrandland rubbed shoulders with many celebrities and investors who he went to for back up the Fyre app and festival (Huddleston, Tom 2019) Billy told investors he had sold Magnesis for around $40m which was later found to be a lie (SEC, 2019). The Securities and Exchange Commision (SEC) was created in the US as a basic framework to protect investors. This framework requires organisations to be transparent and to reveal financial documents (SEC 2019). Carola Jain, was one of Billy’s close friends and main investors, investing $4 million.

Sam Yagan, co - founder of Cupid and

Match.com, was also one of the first investors (Minutaglio, Rose, 2019). Billy had created false documents to show that he had personal stock holdings of $2.5 million, which in fact was only $1500 (SEC, 2018). The SEC press release states that Billy used this investor money to fund his own lavish lifestyle (SEC, 2018). FBI agent, John Casale, went on to call Billy ‘a serial Fraudster’ as he went on to scam another 100 2

investors (Huddleston, Tom 2019).

Billy had told Jeffery Atkins he had bought

Norman’s Cay Island, which he lied about and was later kicked off as the owners didn’t want it to be advertised as Pablo Escobar's island (BBC, 2019). Employees of Fyre Media suggested logical solutions but Billy was not interested and found his own. Billy then made a deal with the Great Exumas government, Billy would supply jobs and support for locals of the island and in return the government would receive tourism revenue and promotion of the island (Mosendz, Polly Bhasin, Kim Nasiripour, Shahien, 2017). When work was carried out on the festival on the island, Billy had no money to pay the local laborers or investors, other managerial staff had to use their own personal bank accounts for the festival (Huddleston, Tom 2019). Billy’s poor management saw him spend money on the promotional aspect, having parties and hiring top supermodels from around the world (BBC, 2019). Just like Magnsis, Billy had sold false hopes to the customers of Fyre Festival, he promised villa’s on the beach but instead they got refugee tents which were around 200 short (Renfro, Kim 2018). Fyre Media received $3 million from EHL Funding a few weeks before the festival started (Mosendz, Polly Bhasin, Kim Nasiripour, Shahien, 2017), at the same time he encouraged festival goers to upload money to prepaid wristbands (a plan made by Billy and executed by Grant Margolin only a few days before the festival) to pay for the construction of the festival (Renfro, Kim, 2020). Throughout everything going wrong with Fyre Festival, Jeffery Atkins, managers and employees would strongly advise Billy with solutions but what Billy said went and no one could say otherwise. This is a clear example of shareholder theory at work. For more money Billy asked his investors with Carola investing more but at the last minute one stepped down.

According to

Bloomberg, Comcast Ventures carried out due diligence and found it wasn’t a safe investment (Mosendz, Polly Bhasin, Kim, 2017). This is the straw that broke the camel's back. Festival goers arrived the next day and uploaded the famous cheese sandwich photo and tents (Brookes, David 2017). Fyre media issued an apology blaming the island itself (Hootenm Christopher, 2017) and Jeffery Atkins issued his own apology, claiming he was also scammed by Billy (BBC 2019). Everything had unraveled for Fyre Media, the FBI opened up an investigation against Billy, he was found guilty and is currently facing 6 years in prison and is paying $26 million back to investors (Huddleston, Tom, 2019) He agreed to the SEC that he will never have a role as director or officer of a public organisation (SEC, 2018). Ja Rule was cleared of all charges, he has claimed to have been scammed by Billy himself (BBC, 2019). 3

Grant Margolin CME was charged $35, 000 by the SEC and a 7 year ban from acting as director (SEC, 2018). Festival attendees received a $5 million lawsuit against Billy and won (McFarland, Sue, 2018).

It is clear that the Fyre Festival was a disaster from start to finish and for a number of reasons. One clear problem was transparency, Solomon states that this is a vital tool to have within an organisation (Solomon, 2013). This is something that was made clear that Billy didn’t have with the rest of the team at Fyre Media. Transparency is key for good decision making and risk management, something that Fyre Media was missing. Good risk management allows organisations to identify risks early on and create solutions to either eliminate the problem or deal with it (Baxter, Kieth, 2010). Risk Management: The challenge and Opportunity agrees with this statement, they claim transparency is key for all aspects and also for investors (Frenkel, Michael; Hommel, Ulrich; Rudolf, Markus, 2013). This also links back to the SEC framework for investors, which Fyre Media didn’t follow and submitted falsified documents. The Essentials of Risk Management, claims that it is a framework that must be followed and put in place in every aspect of an organisation. They also claim there is a line between risk and reward (Robert, Mark; Galai, Dan; Crouchy, Michel, 2013). When it comes to risk management in regards to Fyre Media and the festival, is it clear that there wasn’t any. There are four options when dealing with risk management; avoid, mitigate, transfer and accept. (Raydugin, Yuri, 2016) Fyre Media made the mistake of not taking festival insurance (Huddleston,2019) if they had done so, they would have been able to transfer the risk. Since Fyre Media didn’t have a risk management structure within the organisation it is very unclear to pinpoint how they handled and executed risks. It is most likely that they accepted the risks. As previously stated, employees would establish risks and create solutions to develop them, however, as mentioned before, with Billy as a leader, he would not take any advice and therefore carry on and see how the risk plays out. It is clear that none of the risks taken paid off and there were severe consequences within Fyre Media.

As well as corporate governance issues there were a lot of ethical issues behind the failure of Fyre Media and the handling of Fyre Festival, it is clear to see that most of these issues are from the control of Billy McFarland himself. Although Billy McFarland was a co-founder in Fyre Media with Jeffery Atkins, Jeffery Atkins never had a main 4

role in the organisation (Huddleston, Tom, 2019). This relates a lot to leadership theory within Fyre Media. Social Learning Theory is shown by the amount of influence the leader has over the employees, the employees then follow and copy the behaviour and attitude of those in leadership roles (Hanna, C. Richard; Crittenden L. Victoria; Crittenden L. William, 2013). This could be linked to leadership within Fyre Media as managers and employees wouldn’t stand up against Billy and his demands or hold him accountable for his wrong doings. This could especially mirror the relationship between Billy McFardland and Grant Margolin, as he was said to reflect on his work ethic and outcome he faced by the SEC (Huddleston, Tom, 2019).

Maslow’s Hierarchy of needs can mirror the way Billy McFarland lives and views himself, it is obvious he was to be valued and held to a high standard in the ‘celebrity world’, he wants to be seen as wealthy through spending the money he gained through investments to show off his lavish lifestyle. This would put him in the ‘esteem needs’ and by working in Fyre Media, creating Fyre Festival he is projecting his wealth and creatives, building towards ‘self actualisation’ (J. Sharlyn Lauby, 2005) (which can be shown in figure one)

(Figure 1) The theory that relates most to the leadership within Fyre Media is The Shadow (dark) Side of Leadership. Kellerman states that a bad leader can be very disruptive and ‘unethical’ (Hinken, T.R; Schriesheim, C.A, 1989), this can be shown from start to finish of the Fyre Festival. Billy abused his power as leadership to fund his lifestyle. As previously stated Billy would use investor funds for his own lifestyle (Huddleston, Tom, 2019). Billy couldn’t afford to pay his staff and would promise to pay when the next 5

big investment would come in, he would threaten to fire staff without giving them the rest of their pay, which they never received in the end (Mosendz. Polly; Bhasin, Kim; Nasiripour, Shahien, 2017).

Ego has another massive part to play in ethics and the running of an organisation, Morality, Ethics, and Gifted Minds states that the leader believes they are there for cause or reason (Ambrose, Don; Cross, Tracey, 200). In regards to Billy McFarland, he treated Fyre Media as his own wallet and dipped in and out of investor money. Ayn Rand’s egoism theory believes a that a person’s “moral duty is to achieve personal happiness” (Sharaf, Rahan, 2014), this adds further to Billy McFarland’s selfish tendencies and his lack of empathy to his employees, locals from Exumas or festival attendees, the only person that Billy was thinking about was himself. This is further echoed when FBI agent Casale said about Billy, “In his own mind he was too big to fail”, employees at Fyre Media described his work ethic as “Stunningly ignorant of what it would take to make his promise reality” (Huddleston, Tom, 2019). Corporate governance is about being clear, honest and open with all parties involved (Solomon, 2013). In Fyre Media’s case this wasn’t the reality, there was no clarity or honesty shared to stakeholders, festival goers were sold a false promise and investors a false narrative. Which in the end is what brought the Fyre Festival down. It can be argued that if investors and influencers carried out due diligence in advance, the festival might never have gone ahead. The power that Billy held over the employees is one of the biggest contributing factors of the failure of Fyre Media, not one employee had the confidence to bold Billy accountable because of fear of losing their jobs without being paid. This also fead to Billy’s ego which gave him the entitlement to the money of the investors.

It is hard to comprehend the disruption that was caused in people's life, especially people from Exum’s, their life savings have been spent fixing the damage that Billy left behind (BBC, 2019). As Billy McFarland is so egotistical it is hard to believe if he will ever learn his lesson, he has never taken full responsibility for his actions, he claimed his actions were a result of “not wanting to let people down” (SEC, 2018). While Billy was out on bail he set up another company named Frank, he used the Fyre Media

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mailing list to sell VIP tickets for high end events such as the Grammy’s and The Met Gala without actually holding tickets to sell (Huddleston, Tom, 2019).

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