Investors want Zuckerberg’s grip loosened
Facebook has always had one absolute leader, cemented by a share class structure that maintained Mark Zuckerberg’s voting control even when he sold millions of shares. Some investors grumbled, but most were happy to stay quiet as the stock surged. This week’s plunge upended that dynamic, increasing calls for changes at the top.
“It’s never an issue until things go wrong,” said Pivotal Research Group analyst Brian Wieser. He thinks a change in Facebook leadership is inevitable, and said the latest numbers could hasten that. “It’s really hard to imagine the status quo holding.” A Facebook spokeswoman declined to comment.
On Thursday, Facebook fell 20 per cent, costing investors $120 billion — the biggest single-day loss for an individual stock in history. Shareholders who had weathered months of renewed debate over Facebook’s role in society and the ethics of its business model suddenly turned tail when they realised growth had run out on Facebook’s core money-making app. Growth rates will decline by “high single-digit percentages” each of the next two quarters, Chief Financial Officer David Wehner said.
The loss of faith emboldened voices that have called for Zuckerberg to share more of his voting power and give up his role chairing the board to a more independent figure.
“Zuckerberg answers only to Zuckerberg,” said Jonas Kron, director of shareholder advocacy at Trillium Asset Management, which supported a shareholder proposal last year to replace Zuckerberg as chairman of the board. Since Thursday’s sell-off, he has received new phone calls and emails from other investors expressing support. He declined to identify those people.
For more than a year, Facebook and other socialmedia companies have been under fire from policy makers and regulators for letting fake news, trolls and Russian manipulators proliferate on their services. Now that they’re cracking down, it’s denting growth, spooking investors. Authentic accounts and real information may be good for business longer term. But Kron said Facebook could have avoided some of the trouble if Zuckerberg’s power was checked by an independent chairman.
Other big tech companies like Microsoft, Apple, and Alphabet split the roles of CEO and chairman. Twitter suffered its own stock-market plunge this week, dropping 21 per cent on Friday after user growth stagnated. It is roughly the same age as Facebook and has a similar founder-led mentality, but it already has a separate executive chairman.
Zuckerberg wields too much power, said Calvert Research and Management Chief Executive Officer John Streur. Earlier this year, he grew concerned about Facebook’s approach to privacy and customer data. In April, when he realised engaging with the company wasn’t going to change much, his fund sold its Facebook shares.
“Facebook’s governance structure remains below industry standards, with a large amount of authority concentrated in the founder and CEO,” Streur said. “Shareholder rights are not well respected, limited controls are in place around executive compensation, and concerns have been raised about the effectiveness of risk oversight, including privacy and security risk.”
This isn’t the first time shareholders have publicly voiced their displeasure. In 2012, California State Teachers’ Retirement System asked Facebook to separate the CEO and chairman roles and dispense with the share structure that gave Zuckerberg such an iron grip. In April, the pension fund’s Chief Investment Officer Chris Ailman said Facebook’s data-privacy crisis was fuelled by Zuckerberg’s near total control. Calstrs owned more than 4 million Facebook shares at the end of March, according to data compiled by Bloomberg.
When Zuckerberg tried to pull off a plan to sell almost all his stock while still maintaining control, some investors sued. Last September, just before the class-action lawsuit went to trial, Facebook backed down.
In a post on Facebook, Zuckerberg said he no longer needed the new share structure because the company’s stock had risen so much he was able to fund his philanthropy to rise this time. without selling too much of his “It is difficult to escape the stake. This week’s plunge will conclusion that there are systemic force the CEO to off-load more problems in the ways of his shares to keep the same Facebook has been managed,” level of donations. Pivotal’s Wieser wrote
Zuckerberg’s own words in a note before the results. show how much the company Even if Zuckerberg maintains could benefit from an independent voting power, having more director on its board, independent board members Kron said. In blog posts and would at least give shareholders during his April appearance more of a voice, the in Congress to explain how a analyst said.
Trump campaign-linked How should Facebook firm accessed millions of write the job description for a users’ information, potential independent chairman? Zuckerberg said Facebook “Someone with gravitas, hadn’t taken a broad enough someone with vision, business view of its responsibility. and technology chops,” Kron
“That’s exactly what an said. They’d also need “strong independent board chair understanding of social does,” Kron said. impacts. The ability to think Miscalculating how strong the through unintended consequences,” backlash to Facebook’s old he said. policy of allowing third party One suggestion: Bill Gates. app developers to port away The Microsoft founder experienced user’s data could have been similar rapid growth avoided by having someone followed by a period of instability with a wider, questioning perspective, marked by a bruising he said. antitrust battle. After a lost
Trillium submitted a proposal decade, the company to separate the CEO and emerged stronger, with new chairman roles just a few days leaders and strategies. before Wednesday’s disappointing “When Microsoft got to the results. A similar one other side of that, they had an in 2017 won the votes of 51 per independent chair,” Kron said. cent of non-insider investors, “Bill Gates relinquished according to the investment his chairmanship.” firm. Kron expects that number