Zuckerberg’s power called ‘akin to dictatorship.’
Group says Zuckerberg owns class of stock that grants him power to quash any activist proposals
A major California-based Facebook shareholder blasted the social networking giant’s power structure, arguing that the dual-class share structure grants CEO Mark Zuckerberg voting power that is “akin to a dictatorship.”
The California State Teachers’ Retirement System (Calstrs) said “it is time to act like an adult” for Facebook and Zuckerberg, in an op-ed in the Financial Times on Thursday. The group proposed ending the dual-class share structure, in which special “Class B” shares owned mostly by Zuckerberg have 10 times the voting power as regular “Class A” shares.
“Why does Mr Zuckerberg need the entrenchment factor of a dualclass structure?” wrote Aeisha Mastagni, a portfolio manager at Calstrs. “Is it because he does not want governance to evolve with the rest of his company? If so, this American dream is now akin to a dictatorship.”
According to Facebook’s most recent proxy statement to the Securities and Exchange Commission last month, Zuckerberg owns less than 1 percent of Class A shares, which have one vote per share. But he owns 89 percent of Class B shares, which have 10 votes per share. In total, Zuckberg has 59.9 percent of all voting power in Facebook, giving him majority voting power to quash any activist shareholder proposal.
Calstrs owns $825 million worth of Facebook
shares, according to the Washington Post. With a portfolio of $220 billion, the majority of which are in passive index funds, Calstrs owns huge shares in other Silicon Valley companies, including $1.9 billion in Apple shares.
Calstrs is the latest Facebook investor asking for reform, following comments from Illinois state treasurer Michael Frerichs and New York City comptroller Scott Stringer. Stringer in particular demanded Zuckerberg resign as Facebook CEO last month amid the Cambridge Analytica fallout.
Before its annual shareholders meeting in Menlo Park on May 31, Facebook shareholders sought to bridge the power gap between themselves and Zuckerberg in two proposals. The proposals sought to make all shares have one vote and make all voting proposals decided by a simple majority vote, respectively.
Facebook opposed both, saying they “believe that our success is due in large part to the leadership” by Zuckerberg. They also noted similar proposals have failed the past four years.
Calstrs cited research from Cornell University, European Corporate Governance Institute and the SEC that a company’s shares under a dual-class structure decline in value as the company moves further from its IPO date. Facebook went public in 2012 and has maintained the dual-class voting structure ever since.
“Facebook has grown at an unbelievable pace,” said Mastagni. “The capital structure has changed and it is time for its governance to catch up.”