Facebook shareholders OK ‘Class C’ stock
New category of stock will allow shares to be sold without losing voting rights, even as CEO donates to charities
MENLO PARK — Facebook shareholders on Monday gave a thumbs up to creating a new class of nonvoting stock meant to keep founder and CEO Mark Zuckerberg in control of the company even as he donates his shares to charitable causes.
They also re-elected the company’s board of directors, including Peter Thiel, an early investor in the tech firm who has faced criticism after secretly funding lawsuits against news outlet Gawker Media.
With Zuckerberg controlling roughly 60 percent of the company’s voting power, the approvals of these proposals during the annual meeting didn’t come as a surprise.
Facebook Chief Operating Officer Sheryl Sandberg said during Recode’s conference in June that Thiel acted independently of the tech firm, indicating that the venture capitalist would remain on the eight-member board despite the controversy surrounding him.
The Menlo Park company announced that it was creating a new class of stock, called Class C capital stock, during its first-quarter earnings report in April. Under the 3-to-1 stock split, Facebook would issue two nonvoting shares as a one-time stock dividend for each Class A and Class B share held. Both Class A and Class B shares have voting rights.
With the ability to sell shares without losing voting rights, the new stock structure is meant to keep Zuckerberg in a leadership role in the company. In December, Zuckerberg announced that he and his wife, Dr. Priscilla Chan, planned to give away 99 percent of their
Facebook shares, valued at more than $45 billion, to charitable causes. Last week, the couple announced that they were investing in Andela, a New York and Nigeria-based startup that trains software developers in Africa.
Shortly after Facebook proposed the new stock structure, though, the company was hit with a lawsuit that alleged the committee that approved the deal “did not bargain hard” with Zuckerberg “to obtain anything of meaningful value” in exchange for giving the tech mogul more control.
Some corporate governance experts also say that the new structure gives Zuckerberg the competitive advantages that comes with a publicly-traded company at the expense of the wider investing public.
“There’s a lack of accountability because the outside shareholders have no ability or leverage to police what’s happening to their investment,” said Stephen Diamond, an associate professor of law at Santa Clara University’s School of Law.
On Monday, not all shareholders were on board with the idea.
“As shareholders we’re very concerned about the governance risks that come from relying upon one person’s vision and predictions of the future and the same person’s ability to reduce risks for the company long term,” said Christine Jantz, chief investment officer of Northstar Asset Management, which owns $5.4 million in Facebook stock.
During the Q&A portion of the annual shareholder meeting, Zuckerberg was asked if he planned to be more involved in charity than running Facebook. In response, the 32-year-old executive said, “I plan on being involved in running Facebook for a very long time.”
Founded in 2004 in a Harvard dorm room, Facebook made its public debut in May 2012. The company’s stock closed up 0.31 percent on Monday at $113.37 per share.