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David Ramos / Getty; Skye Gould / Business Information
- Facebook shareholders who invest nearly $ 3 billion in the company are trying to overthrow Mark Zuckerberg as president and dismantle the company's governance structure.
- Business Insider spoke to six prominent shareholders who said that there was an unprecedented level of agitation among Facebook's funders following a series of scandals.
- They openly revolt against Zuckerberg 's power base, which allows him to rule out any shareholder proposal with which he does not agree.
- An investor likened him to a robber baron, a pejorative term for 19th century America's moguls who accumulated enormous wealth.
- Facebook says its governance structure is "healthy and effective" and that sharing Zuckerberg's responsibilities as President and CEO would result in "uncertainty, confusion and inefficiency" .
Facebook investors, whose shares account for nearly $ 3 billion (£ 2.3 billion), are taking steps to overthrow Mark Zuckerberg as president and dismantle his power base within the company.
Business Insider has spoken to six prominent shareholders who are increasingly worried about how Facebook is being handled, and increasingly loud in their demands for change.
All agree that investor anger has never been so pronounced since Facebook became public in 2012. They have been frustrated by the series of scandals, since election interference up to ################################################################################### At the Cambridge Analytica disaster.
These crises were partly fabricated by the way the company is run, said rebel investors, and have not been properly handled because Facebook's governance structure means that Mark Zuckerberg is essentially untouchable at the same time as CEO and President.
"We are concerned about the board structure that the company does not seem prepared to address, which can lead to reputational, regulatory and other risks," said New York Comptroller Scott Stringer, who oversees approximately $ 895 million dollars. actions via municipal pension funds.
AP
Investors are openly campaigning for radical change on many fronts, but there is a clear consensus around two particular issues, which have been regularly raised during interviews with Business Insider:
- They want Zuckerberg to resign as president and an independent executive be hired instead.
- Shareholders also want Facebook's dual-class share structure to be abolished, as they believe it is focusing too much power in the hands of Zuckerberg and his best team.
A majority of independent shareholders have voted in favor of proposals to achieve these goals at the last two Facebook investor meetings. Anger overflowed at this year's meeting, where Zuckerberg was accused of running the company as a "dictatorship," while another shareholder was expelled from the event for voicing his dissatisfaction.
Some shareholders have also requested that Facebook's audit committee be strengthened, but this issue has been largely addressed this month when the company has strengthened the committee's responsibilities to encompass the social impact, confidentiality and cybersecurity.
Facebook downplayed the idea that it was a response to external requests. But shareholders were reassured by the fact that it was a sign that the company was, at a certain level, listening. And even if it was a victory, it was a battle, not the war. Now, investors want progress on other issues.
Facebook declined to comment on the buzz of investors. A spokeswoman pointed to Business Insider's earlier statements in which he says his governance structure is geared to the goal.
It has certainly proven a safe bet for investors. The title of Facebook has grown by more than 400% since its IPO in 2012, its turnover has climbed nearly 1,000% to $ 40 billion and 2.2 billion active users about 30% of the world's population. All the while, he has seen rivals challenges, including Twitter and Snap.
In many other companies, shareholders would praise Zuckerberg 's stewardship. But on the contrary, they want to weaken his influence.
Zuckerberg does not answer anyone
Michael Frerichs, treasurer of Illinois, who invests about $ 35 million in Facebook, said the shareholders want to remove Zuckerberg as president for a simple reason: "It's not accountable to anyone, nor is it neither the board nor the shareholders, he is his own boss and he clearly did not work. "
Frerichs has coordinated with four other shareholders, with combined interests in Facebook of about $ 2 billion, to lobby for change. The efforts were led by activist investor Natasha Lamb, managing partner of Arjuna Capital, who stated that there was "very little trust" in Zuckerberg's work.
Beck Diefenbach / Reuters
The likes of Apple, Google, Oracle, Twitter and Microsoft have all split the role of President and Chief Executive Officer, said Jonas Kron, senior vice president at Trillium Asset Management, which manages about $ 10.5 million. Facebook dollars on behalf of Park Foundation philanthropic organizations.
Kron said Zuckerberg should look to his model and mentor Bill Gates for advice. Mr. Gates resigned from his position as CEO and President when he resigned as CEO of Microsoft in 2000.
When you combine the roles of President and CEO, more than the President and CEO has a controlling stake, it's a toxic beverage
But Zuckerberg's power is compounded by his voting rights. Facebook divides its shares into two classes: class A and class B. The latter has 10 times the voting power of class A, and it turns out that Zuckerberg holds 75% of this stock. This means that he has more than half of the voting rights on Facebook, and therefore almost complete control.
"When you combine the dual role of President and CEO, and that the President and CEO personally owns a majority stake in this company, it is a toxic beverage, which means that it There is very little dissent, "said Michael Connor. Open Mic, an organization that helps shareholders campaign to improve the governance of some of America's largest corporations.
Zuckerberg's power to ward off investor concerns has been highlighted over the last 13 months. A proposal to oust him as president was established and quickly crushed at the investor meeting last year. The analysis of Connor shows however that it was supported by 51% of the independent shareholders.
Natasha Lamb
The story was repeated in May at the 2018 Facebook shareholders' meeting. Investors filed a proposal to abolish the two-class share structure and, again, it was rejected. But scratch a little deeper and the data show that the proposal was supported by a whopping 83% of independent investors.
In other words, if Zuckerberg does not agree with the shareholders, he still has the trump.
Patrick Doherty, director of corporate governance at the Controller's Office of the State of New York, who manages more than $ 1 billion of shares on Facebook, said that it was an organization that belongs in the past.
Doherty explained: "The idea that there should be an autocrat in charge of a gigantic public company, which has invested billions of dollars in shareholders' money, is an anachronism : it goes back to the 19th century, when you had those thieving barons who were autocrats and dictators. "
The idea that there should be an autocrat in charge of a gigantic public company is an anachronism. It goes back to the 19th century when you had thieving barons
And Lamb has direct experience of Facebook's reluctance to engage. She campaigned on issues, including gender pay, but was rejected by outgoing communications chief Elliot Schrage at last month's investor meeting as "not nice". Lamb said that it was a "sexist" remark, which indicates that Facebook has not listened to the shareholders. Schrage is excused later.
But she can see a simple reason why Zuckerberg would be reluctant to make the two-class structure disappear: Because it would be "signing a contract on his own demise."
In a statement last month opposed to the investor proposal to abolish the share structure, Facebook said that both classes of shares have been in place since 2009 – three years before the company 's action. company has become public.
"We believe that our capital structure is in the best interest of our shareholders and that our current corporate governance structure is strong and effective," continued Facebook.
On the prospect of removing Zuckerberg as president, the company said it would cause "uncertainty, confusion and inefficiency in the advisory and management function."
A number of shareholders told Business Insider that these justifications were at odds with the content of Zuckerberg 's excuse tour after Cambridge Analytica had used Facebook data for political purposes.
Specifically, the CEO said: "We have not taken a broad enough view of our responsibility, and it was a big mistake" in reference to the false news, to the electoral interference and to the confidentiality of the data. The shareholders we spoke to agreed unanimously that a different governance structure would have opened Zuckerberg's eyes to the pitfalls of his "go fast and break things" mantra, which Facebook has now abandoned. .
"When you open up to more opinions, to more independent voices, you are more likely to make better decisions, and it is more likely that a person with independent governance will have spoken out on certain of these things, "said Frerichs.
Investors will continue to launch grenades
Investors are not about to stop reminding Zuckerberg of his responsibilities. They will continue to table proposals at annual shareholder meetings, sending strident letters to Facebook's directors, collaborating with management through meetings and other correspondence, and sharing their frustrations with the press. .
But Dylan Sage, chief executive of Baldwin Brothers, thinks it will take something meaningful for Facebook to engage. According to him, a substantial drop in income or users could cause troubles in the board of directors, or the problem could be removed from the company.
"If you continue to see more Cambridge Analyticas appear on the platform, or to distort elections or create hate crimes and ethnic cleansing in the world, then you will see social unrest to the point where regulators enter in-game "Sage added. He sold much of his Facebook stock after the Cambridge Analytica scandal, but he has invested about $ 2.8 million in the business.
REUTERS / Danish Siddiqui
In the end, all investors have agreed that they want the best for Facebook.
"We care about the best interests of the company because we are a major investor," Doherty said. "We have invested more than a billion dollars in Facebook right now, while we and other investors believe that Facebook continues to be a good investment, but there are very serious issues to be addressed. . "
People think that companies like Facebook are bulletproof, and they are not
"As long-term investors on Facebook, we want to make sure the company is strong," added Stringer. Frerichs continued, "It's about ensuring the long-term viability of the company, and with changes in corporate governance, we can reduce some of the risk . "
Connor, who has no stake in Facebook, reminded Zuckerberg that tech companies are not invincible – even if they sometimes seem untouchable.
"People think that companies like Facebook are bullet proof, and they are not," he said. "Companies like AOL and Yahoo come and go, you have people like Travis Kalanick, who was the co-founder and CEO of Uber, who came and went, these things can self-destruct.
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