What Robinhood’s IPO Tells Us About the Difference Between Disruption and Irresponsibility

The IPO of U.S. online broker Robinhood raised $2.1 billion, but has been ranked as one of the worst in history: shares opened trading at the same price as the IPO and then fell 8.4%, reflecting market concerns about its business model.

Robinhood has undoubtedly disrupted the market. Its easy-to-use app allowed anyone to buy and sell shares without commissions, which on occasion has created unprecedented instability while driving the development of so-called meme stocks.

In general, removing entry barriers is a common source of innovation and disruption, which is no bad thing. The problem is what you do with the disruption you are able to generate, and Robinhood is a very clear example of irresponsible behavior. Since its creation, Robinhood has managed not only to make it easy for anyone to buy shares, but also to gamify the process and turn it into something addictive, a kind of game many people got caught up in. The company has done it all wrong and demonstrated how disruption, when used carelessly, can be a very bad thing: poor security and customer service, schemes that lead to addiction, and a business model that is not at all clear or transparent.

Its founders claim the company was ready to go to market, but that depends not only on the maturity of the company, but also on its ethical standards. We have increasing evidence of the damage that a company with poor or non-existent ethical standards can do when it spirals out of control, and Robinhood is, in that sense, a clear example of when a market rewards bad behavior and irresponsibility. Rewarding companies that are in the business of turning the financial markets into a casino, that provide poor information to its users along with very poor customer service and in addition with an opaque business model is simply sowing the seeds for big problems down the road.

With access to more money, Robinhood will continue behaving badly and produce more victims. The fall in its share price could be proof that, in some sense, ethics (or the lack thereof) is also publicly traded, although it still, unfortunately, does not yet carry the weight it arguably should in a healthy society. What a healthy society should do with companies like Robinhood is not to reward them with more money, but isolate them, put them under rigorous controls, and try to prevent them from causing the problems they do. When a company like Robinhood demonstrates what it has already demonstrated in its relatively short history, what it is really demonstrating is that it is beyond redemption, because unethical behavior is embedded in its DNA. Nothing good can be expected from such a company.

Once again, innovation or disruption is not necessarily a problem: it is the use that some irresponsible people make of it to try to maximize their profits at any cost.

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This post was previously published on Medium.

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