Mark Zuckerberg has too much power, say some big investors. They might be right

Facebook is no longer a child, and CEO Mark Zuckerberg either.

The social network, created in a Harvard dormitory in 2004, celebrates 15 years next year, which is quite long for the Internet years. And a growing number of its shareholders say that it's time for Facebook (FB) to grow.

What exactly does it mean? If you look at a proposal tabled this week on behalf of several of Facebook's big shareholders, you have to force Mr. Zuckerberg to resign as president.

The proposal, initially tabled in June by Trillium Asset Management, received an additional vote of confidence this week as the treasurers of Illinois, Rhode Island and Pennsylvania, as well as the New York City Comptroller, officially co-signed the proposal. . For example, the New York Comptroller manages the country's fourth largest pension system, with assets of more than $ 195 billion; by the end of July, it held 4.5 million Facebook shares, with a current value of nearly $ 700 million. And the leaders of these public funds feel that it's time that Zuckerberg focuses on the task of managing Facebook – not on his board of directors.

This is not the first time shareholders propose to split roles. Trillium made a similar proposal in 2017. But in light of the annus horribilis of Facebook – Cambridge Analytica, foreign influence traffic, Congressional surveillance, hacks and data leaks, a trust problem of consumers and now a declining stock price that could match while Facebook is trying to stop the bleeding, and Zuckerberg is fighting to manage his empire.

Going beyond the confidentiality issues of the data frequently treated in the technology press, the proposal links a wide range of controversies, from the harmful impact of Facebook on mental health, to discrimination in its advertising tools and its role in the spread of violence in Myanmar, India. South Sudan – uncontrolled power in the hands of Zuckerberg.

"An independent chairman of the board is key to moving Facebook forward and out of this mess and restoring trust with Americans and investors," said Scott M. Stringer, controller of New York City.

As a historical backdrop, 20 years ago, Bill Gates, founder of Microsoft (MSFT), had testified before Congress about a federal antitrust case against the company, before leaving his position as CEO while remaining chairman of the board.

There were undeniable parallels when Zuckerberg – another Harvard giant who had dropped out of school, and once a powerful billionaire – sat in front of Congress for two days in April 2018 over many controversies cited by shareholders as proof that it was time for him to divide the roles.

And in the technology industry, there are other examples of leading companies that eventually split the roles of CEO and President: Microsoft, but also Alphabet (GOOGL), Apple (AAPL), Oracle (ORCL) and Twitter (TWTR). In total, approximately 60% of S & P 500 members have separate roles as CEO and President. And although it is relatively rare for presidents or CEOs to be ousted by a shareholder vote, this actually happens: in 2009, shareholders forced Ken Lewis, then CEO and President of Bank of America (BAC), to step down as president in the midst of the financial crisis.

"We simply think that in general, separating the roles of president and CEO for mature businesses is a good practice in corporate governance," told TheStreet's treasury treasurer. State of Illinois, Mike Frerichs.

Nobody can force Zuckerberg to do anything. Through a tiered stock system that gives him 10 votes per typical shareholder, he controls 59.9% of Facebook's voting shares. Meanwhile, Facebook's insular conference room, consisting of Zuckerberg, Sheryl Sandberg, chief operating officer of Facebook, early investors, Marc Andreessen, Peter Thiel and a few others, is referred to as "Echo Chamber". By his detractors.

"Although it's ultimately up to Mark Zuckerberg to decide, he should look around at his counterpart companies," said Jonas Kron of Trillium.

The proposal is expected to be voted in May 2019 and by then the group submitting the proposal will be talking with other investors, and with Facebook, to advocate for split roles. It may be too early to say what will happen (and the proposal might fail), but there is good reason to think that with the decline in stock prices under the weight of its many controversies, Facebook could listen to its shareholders.

"When you have these respected and influential investors who are responsible for hundreds of millions of dollars asking the question, it's up to Facebook and Mark Zuckerberg that it's incumbent to justify and explain why he should remain chairman of the board, "added Kron.

Zuckerberg may have pushed the company so far – but in the eyes of many investors on Facebook, he suffers more than he does not help.

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