Frus­tra­tion with tech lead­er­ship in­creas­ing

Share­hold­ers’ ef­forts seek­ing bet­ter over­sight at Google, Tesla and oth­ers shot down by com­pa­nies’ in­vestors

The Mercury News Weekend - - BUSINESS - By Levi Su­ma­gaysay lsuma­gaysay@ba­yare­anews­

Face­book, Google and Tesla share­hold­ers have some­thing in com­mon: They’re not happy with man­age­ment.

In the past week, the three com­pa­nies’ in­vestors shot down share­holder pro­pos­als seek­ing more ac­count­abil­ity from the com­pa­nies and their lead­ers. All three com­pa­nies’ founders own con­sid­er­able stakes in each of the busi­nesses they founded— or have out­size in­flu­ence — so share­holder pro­pos­als are usu­ally an ex­er­cise in fu­til­ity.

That may not be unique in the busi­ness world. But th­ese com­pa­nies in par­tic­u­lar are fac­ing tremen­dous pres­sure amid a back­lash against tech com­pa­nies, in­clud­ing rum­blings that Sil­i­con Valley has be­come too pow­er­ful.

Face­book’s dual-class stock struc­ture­means CEOMark Zucker­berg holds nearly 60 per­cent of vot­ing rights to the world’s largest so­cial net­work. Ditto Al­pha­bet, where Google co­founders Larry Page and Sergey Brin hold 56 per­cent of vot­ing power. At Tesla, CEO Elon Musk owns about 20 per­cent of the com­pany but is its largest in­di­vid­ual share­holder— and has an al­most re­li­gious fol­low­ing.

A pro­posal to ap­point an in­de­pen­dent chair­man of the board at Tesla be­sides Musk

lost handily at the com­pany’s an­nual meet­ing Tues­day. It man­aged to get 16.6 mil­lion votes in agree­ment, but there were 86 mil­lion votes op­posed, ac­cord­ing to Tesla’s fil­ing with the Se­cu­ri­ties and Ex­change Com­mis­sion. Another pro­posal, which op­posed the re- elec­tion of three board mem­bers in­clud­ingMusk’s brother Kim­bal Musk, also was voted down.

Tesla has strug­gled with pro­duc­tion prob­lems for its lat­est ve­hi­cle, the Model 3. It is also deal­ing­with safety is­sues with its driver-as­sist Au­topi­lot tech­nol­ogy, and it is being in­ves­ti­gated by the Na­tional La­bor Re­la­tions Board for ac­cu­sa­tions of union-bust­ing.

Mean­whi le, sev­eral share­holder pro­pos­als failed at Al­pha­bet’s share­holder meet­ingWed­nes­day, in­clud­ing one sup­ported by Google em­ploy­ees: ty­ing ex­ec­u­tive pay to the com­pany meet­ing its di­ver­sity goals.

Irene Knapp, a Google en­gi­neer, spoke at the meet­ing and painted a pic­ture of rag­ing cul­ture wars at the tech gi­ant.

“Di­ver­sity and in­clu­sion ac­tiv­i­ties by in­di­vid­ual con­trib­u­tors and man­agers alike — in­clud­ing men­tor­ship, out­reach, and com­mu­nity build­ing — have been met with a dis­or­ga­nized ar­ray of re­sponses, in­clud­ing for­mal rep­ri­mand,” Knapp said.

The com­pany’s di­ver­si­tyre­lated prob­lems are many, and come from all sides. It is fac­ing a law­suit over gen­der and pay. And last year, Google fired James Damore, a con­ser­va­tive en­gi­neer who wrote a memo crit­i­ciz­ing the com­pany’s di­ver­sity ini­tia­tives and im­plied bi­o­log­i­cal dif­fer­ences make women less suited to the tech world. Another share­holder pro­posal that was re­jected Wed­nes­day asked the com­pany to ap­point con­ser­va­tives to its board.

As for Face­book— which has been rocked by pri­va­cyre­lated scan­dals and its role in the prop­a­ga­tion of dis­in­for­ma­tion dur­ing the 2016 U.S. pres­i­den­tial elec­tion — a share­holder pro­posal to es­tab­lish a riskover­sight com­mit­tee failed last week. Also at the an­nual meet­ing, where Zucker­berg was urged not to turn Face­book into a “cor­po­rate dic­ta­tor­ship,” a pro­posal to cre­ate a con­tent­gov­er­nance re­port failed.

But Open Me­dia and In­for­ma­tion Com­pa­nies Initiative, a non­profit that works on so­cially re­spon­si­ble in­vest­ing and share­holder en­gage­ment and which sup­ported those two pro­pos­als, pointed out this week af­ter Face­book re­leased the fi­nal vote tal­lies that out­side in­vestors’ votes show clear dis­con­tent.

“De­spite strong urg­ing from the com­pany to re­ject each and ev­ery one of th­ese pro­pos­als, nearly half of in­de­pen­dent share­hold­ers sup­ported two pro­pos­als for stronger gov­er­nance and con­tent­man­age­ment, demon­strat­ing just how out of sync CEO Mark Zucker­berg and his team are with the av­er­age in­vestor,” said Michael Con­nor, ex­ec­u­tive di­rec­tor of OpenMIC, in a state­ment. “In­de­pen­dent share­hold­ers also over­whelm­ingly voted to change the dual class share­hold­ing vote struc­ture, and nearly one third did not sup­port the re- elec­tion of Zucker­berg or COO Sh­eryl Sand­berg to the com­pany’s board.”

So what are out­side in­vestors to do when com­pa­nies whose in­sid­ers con­trol the vot­ing rights re­ject their calls for greater over­sight and trans­parency?

“Out­side in­vestors can — and will — keep up the pres­sure,” Con­nor said. “Peo­ple tend to think that a com­pany like Face­book can sur­vive no mat­ter what. The re­al­ity is that the his­tory of the tech world is filled with the lega­cies of com­pa­nies that once dom­i­nated but now no longer ex­ist — com­pa­nies like Ya­hoo, AOL, MySpace and oth­ers. Face­book would be well-ad­vised to take note.”

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