Despite Shareholder Concerns, Mark Zuckerberg Retains Control Over Facebook

Mark Zuckerberg - Despite Shareholder Concerns, Mark Zuckerberg Retains Control Over Facebook

Source: Shutterstock

Facebook (NASDAQ:FB) and CEO Mark Zuckerberg are practically synonymous. He built the company (albeit with some help) from the ground up starting in his dorm room back in 2004, and there’s no denying his feel for what would and wouldn’t work was pretty much on target.

But as is the case with all ventures, time, competition and sheer size are starting to catch up with the chief of the social networking site. Displeased with a few too many gaffes and too little certainty that he’s prepared for the company’s next evolution, a handful of large shareholders are calling for an end to his commanding, impenetrable control of the company.

It’s unlikely they’ll get satisfaction anytime soon.

The Natives Are Getting Restless

The Cambridge Analytica scandal was the tipping point, though truth be told, the matter had been growing to a head long before that debacle surfaced.

Nevertheless, it was the Cambridge Analytica matter that finally prompted several major shareholders to start speaking out against what they see as a problematic corporate structure that gives Mark Zuckerberg outright control of Facebook.

Patrick Doherty, the director of corporate governance for the New York City comptroller, is one of those newly vocal critics.

He said in a recent interview: “The idea that there should be an autocrat in charge of a gigantic public company, which has billions of dollars of shareholder money invested in it, is an anachronism.” He added, “It harks back to the 19th century when you had these robber barons who were autocrats and dictators.”

The comparison to dictatorial robber barons is extreme to say the least and not entirely accurate. But, in that Doherty’s office oversees about $1 billion worth of FB stock, his emotions on the matter are understandable.

The same office’s Scott Stringer offered a more cool-headed but equally poignant assessment, saying, “We have concerns about the structure of the board that the company doesn’t seem ready to address, which can lead to risks — reputational, regulatory, and otherwise.”

None of these observations are new. What is new, however, is that these investors (and others) are organizing an effort that will inject a bit more accountability into the mix, by stripping away some of Mark Zuckerberg’s control of Facebook.

It won’t be easy, though. Indeed, it may be impossible.

Mark Zuckerberg Isn’t Going Anywhere

Mark Zuckerberg doesn’t own the majority of Facebook shares. But, due to the dual-class nature of the company’s capitalization, he and his fellow insiders have effective control of the organization.

Specifically, his class B shares come with 10 votes per share, versus only one vote per share for the shares that are circulating in the public float. He and those insiders control nearly 70% of the votes that ultimately dictate who the company’s leaders are and the decisions they make. Mark Zuckerberg alone controls 60% of shareholder voting power.

It’s not an unheard of situation. Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has faced similar criticism, as has Snap (NYSE:SNAP), which grants about 48% of shareholder voting power to CEO Evan Spiegel — enough keep him firmly employed and in charge.

The only way to change the structure of corporate control is to put it to a shareholder vote. Thus far, Mark Zuckerberg hasn’t been interested in such a change. And, he doesn’t have to be. In effect, shareholders are silent partners of the publicly traded company.

The Last Word

In the most superficial sense, it doesn’t seem right. The whole idea of stock ownership is to give shareholders a say in the company’s management in exchange for the risk they assume as investors. If they don’t have that say, what’s the point?

There’s a glaring, screaming solution to the problem that few people are willing to acknowledge is on the table, however. That is, if you truly think Mark Zuckerberg is going to do more harm than good to the company, don’t buy the stock.

It’s an ugly reality about this game, but nobody was ever, ever forced to invest in a particular equity. Everyone who did had an opportunity to dissect a mountain of information about that company’s voting-power distribution. You’re either okay with it, or you’re not. Nobody’s mandated to become or remain a shareholder.

But if you like Facebook’s growth prospects and want to participate, then get used to the fact that Mark Zuckerberg is firmly at the helm. There is no third option until he allows there to be a third option.

In that light, sucking it up seems like the better choice of the two. Zuck’s done a pretty good job of things so far. Not perfect, but certainly pretty good.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/despite-shareholder-concerns-mark-zuckerberg-retains-control-over-facebook/.

©2022 InvestorPlace Media, LLC