Zuckerberg’s status update
IN A highly circulated opinion column last week, a prominent US pundit floated Facebook cofounder and CEO Mark Zuckerberg as the head of a reformist political movement to be known as the Innovation Party.
Naturally, the piece was mocked for a variety of reasons. Alas, the idea of president Zuckerberg could be problematic for no other reason than that the man is not fond of democracy. As the social network reported another spectacular quarter (revenue up 52%, and even with 1-billion people on the site, Facebook user growth somehow accelerated), it announced plans to cement its chief’s control.
Since its initial public offering, Facebook has maintained a superclass of stock that allows Mr Zuckerberg to maintain control even as more shares are issued to employees, or to pay for acquisitions. Through his Class B shares, which have 10 times the vote of Class A, he controls 60% of the vote. However, as he sells or transfers shares because of his philanthropy, and new shares are issued, his iron grip would no longer be guaranteed.
The solution: the creation of non-voting Class C shares that will be given to existing holders of Class A and B (two C shares for each A or B owned). Google also executed such a stunt, so its founders could keep control.
Some shareholders sued and a settlement allowed them to be compensated if the new class of shares traded at a discount to the voting classes. Today, Google C shares trade at a 2% discount.
Facebook’s board emphasised that it went to great lengths to negotiate a fair deal with Mr Zuckerberg, noting it hired its own investment bank and law firm and that talks went on for months.
The key concession it seemed to wring out is that his super-voting shares, upon his death or departure, would no longer have the advantage (Mr Zuckerberg can maintain the super-shares should he leave for public office).
His vision has proved wildly lucrative to all Facebook shareholders and looks even more glorious as rivals Google, Apple and Netflix have slipped recently.
The once curious acquisitions of Instagram, WhatsApp and Oculus are now poised to pay off, even as the core Facebook social network is not slowing down.
It is reasonable to believe that Facebook is the best-managed company in the world. But if that view ever changes, that grievance can still be expressed in the classic form: by dumping shares. London, April 29.