Zuckerberg is trapped in the "game of power": Facebook has the final say?

Facebook CEO Mark Zuckerberg has recently had some trouble.

According to technology blog VentureBeat, some shareholders are putting pressure on Facebook to ask Zuckerberg to withdraw from the board. In a proposal, they said that the independent chairman would be better able to "supervise the company's management, improve company management, and develop a more accountable and more favorable agenda for shareholders." These shareholders are from consumer rights protection organization SumOfUs.

Facebook did not comment on the proposal, but the company may issue a related statement when submitting the proxy in April. Lisa Lindsley, founder of KarmaKaptal, SumOfUs Capital Markets Consultant, said: "This proposal has already received four valid votes from SumOfUs shareholders, in line with the requirements for submission." More than 330,000 people have signed a petition requesting Facebook to improve corporate responsibility. Words, of which 1,500 are Facebook shareholders.

The proposal illustrates the new capital structure approved by Facebook last year as an example. The internal power of the company has been out of balance. At the Facebook shareholders meeting held in June last year, participants were asked to vote on the proposal to approve the issuance of Class C shares. The purpose of the proposal is to ensure that Zuckerberg has control over the company. Although the proposal was passed, at least one shareholder sued Facebook afterwards, arguing that the issuance of Class C stocks was unfair.

The shareholder's proposal said that the independent chairman "can achieve a balance of power between the CEO and the board of directors, enhance the leadership of the board", and the interests of shareholders will be guaranteed. The proposal also pointed out that the establishment of an independent chairman will be "particularly beneficial" to the company as Facebook "is increasingly criticized for issues such as false news, regulation and hate speech."

SumOfUs is worried that Zuckerberg may let Facebook develop along the path he personally believes to be right, and invest too much resources to cause damage to shareholders' interests. The proposal said that if it was replaced by an independent chairman, it would prevent this from happening.

Who's Facebook

There is no doubt that Facebook has been imprinted with Zuckerberg's deep brand.

As early as 2006, Zuckerberg rejected the $1 billion acquisition of Yahoo. At that time, Facebook was only two years old and just opened its registration to the public. During the negotiations, according to Facebook's early investor Peter Thiel, "Mark said at the beginning that it would be best to finish the conversation within 10 minutes. When Yahoo throws a price of $1 billion, he does not want to sell at all." Zuckerberg The idea at the time was that there were a lot of things that had never happened on Facebook, and Yahoo had no idea about the new ideas for these futures. They couldn’t correctly value things that didn’t exist, so they would definitely underestimate. This business.

With the growing momentum of Facebook, Zuckerberg uses its vast market value to bring in start-ups that are developing high-risk innovative products. Zuckerberg spent $22 billion in more than a year, acquiring photo sharing service Instagram, instant messaging service WhatsApp and immersive virtual reality technology company Oculus.

For large companies, the founders are usually quite authoritative and very personal. Lindsley said: "In general, the board is subject to the CEO is almost a common phenomenon. In the case of Facebook, you can see that the directors regard Zuckerberg as the sole power owner."

Since listing on Facebook, Zuckerberg has had more than half of the company's voting rights, nine times more than the average shareholder, and retains control over the company's development strategy. And it owns up to 28% of Facebook and is the company's largest shareholder. When Facebook first went public, some people questioned that this practice of concentrating too much power on one person might pose a threat to investors' interests and discourage the company's potential investors in the IPO.

In the 2012 Facebook prospectus, the 27-year-old CEO had 56.9% of the voting rights, and he also had the right to designate a successor before he died. Although the company's board of directors has added a number of veterans, including venture capitalist Marca ndreessen and Washington Post Group CEO Donald Graham. Charles Elson, a professor of corporate management at the University of Delaware, said: "Zuckerberg’s absolute control means that directors and shareholders will not be able to influence the company’s direction." Professor Elson proposed at the time. "The public has no say in the control of the board. I think this will undermine the board's ability to perform its duties. This makes investors feel very uneasy because it is not a good bet for them."

Although Zuckerberg has been criticized for "holding too much power," Facebook's financial situation seems to be doing well in the near term, and the stock price continues to rise.

Facebook's latest earnings report shows that its revenue growth of 51% reached 8.81 billion US dollars, for seven consecutive quarters of revenue and profits both exceeded market expectations, and the stock price growth also shows that Wall Street is optimistic about the company's performance. After the recent sale of shares, Zuckerberg’s current net assets are approximately $52 billion. Although some stocks were sold, Zuckerberg’s net worth has not declined in the past year due to the rise in Facebook’s stock price.

Dual ownership structure

In fact, in the past 15 years, in order to protect the interests of the founders, many companies have sold their economic rights to more shareholders, but they have concentrated their voting rights in one or more founders. This has gradually become a practice of corporate governance. Technology companies like Google, Groupon and Zynga operate like this. The advantage of this approach is that while limiting the power of investors, it ensures that the company moves forward along the established path of visionary leaders. In addition, this approach can limit the influence of shareholders on management in terms of executive compensation.

According to the Economist statistics, in 2000, a total of 482 companies in the United States adopted a dual-equity structure. After the Internet bubble burst, it fell to 362 in 2002. In 2010, 12 companies adopted this structure in IPOs. In other words, only when the company's performance is excellent, shareholders will accept this structure close to "dictatorship."

In fact, Facebook's adoption of this architecture is inspired by Google. Google also adopts this two-tier structure when it goes public, that is, there is one vote for A shares issued by external investors, and ten shares held by management. Tickets, Page and Brin had 57.7 million GOOG leB shares before the 2010 sale, which is equivalent to 18% of Google's outstanding share capital and 59% of voting rights.

There is also a double-layer equity structure in Chinese companies. Both Baidu and JD.com adopt this kind of structure. The founder of Jingdong Liu Qiangdong is even stronger. The B-shares owned by the company are equivalent to 20 votes of Class A shares. Therefore, although Liu Qiangdong holds only 18.8%, it controls JD. More than half (51.2%) of the voting rights.

Historically, some companies with dual ownership structures have also encountered obstacles from investors. For example, in 2010, the shareholder of Canadian auto parts manufacturer Magna International Inc. voted to cancel the dual shareholding structure, thereby weakening its power to give the founder Frank Stronach.

David Larcker, a professor at Stanford’s Locke Management Center, told First Financial reporters that this arrangement has allowed companies to circumvent regulations that apply to most IPO companies, such as the establishment of a compensation committee, which is primarily funded by independent investment. Composition. He said: "Zuckerberg controls voting rights, which is why they do not have to comply with the strict rules of listed companies." Professor Elson also said: "For long-term shareholders, this means they are fooled."

Wang Ping, the managing director of the Korean investment partner, told the First Financial Reporter: “The situation of more concentrated voting rights is generally only possible if the founder’s share is quite large and quite strong. Otherwise, institutional investors Zuckerberg has given the agency hundreds of times the return, and no one will object at first. And the founders have tens of billions of dollars in hand, and all the institutions hope to grow together. Into LP (limited partner)."

Institutional debate

There are eight members on Facebook's board of directors, five of whom are independent directors. An independent director is a director who is independent of the company's shareholders and does not serve in the company. It has the independence of judgment on the company's affairs. The leader of Facebook's independent director is Susan Desmond-Hellman. The purpose of this position is to replace the chairman's position once the roles of the chairman and CEO are separated. A 2010 report by PricewaterhouseCoopers shows that the establishment of an independent directorship has become a very common phenomenon among US companies. This position is usually selected by an independent director. However, 67% of companies with independent director positions still choose the chairman and CEO.

However, the phenomenon that the chairman is also a CEO is particularly prominent in the United States. In other developed countries, such as Australia, Canada, New Zealand and even Europe, the CEO and chairmanship are usually divided into two. But there is no research showing which one is better than the other.

In a 2005 survey conducted by Harvard Business School and Wharton Business School on a board of directors of major UK and US companies, it was unexpectedly discovered that the separation of the chairman and CEO’s responsibilities did not result in more efficient management of the company. There are obvious benefits."

A study published by the Massachusetts Institute of Technology (MIT) Sloan Management Review (SloanManaGE mentReview) said: "The CEO and the chairman of the board are all in the same way as the 'foxes care about the chicken nest', but there are separate issues, and this arrangement It is not necessarily effective in the US model.” The report specifically pointed out that if the setting of the leadership role is not clear, it will damage the governance effect of the company. “It’s easy to talk on paper, but there’s still a big gap between actual operations and verbal descriptions,” said Harvard researchers Jay Lorsch and Andy Zelleke.

This is not the first time SumOfUs has submitted a proposal to separate the company's management leadership. In 2015 and 2016, the organization also urged US agricultural giant Monsanto to separate chairman and CEO positions and receive support from 20% of the members. However, Monsanto has so far been the CEO and chairman of HughGrant.

Yang Zijiang, the co-director of Ernst & Young, told the First Financial Reporter: "There are two situations in which the general leader abdicates. One of them takes the initiative to step down, and the other is removed by the board of directors or the shareholders' meeting." He explained, "From the decision-making level, the highest level is The general meeting of shareholders, followed by the board of directors. If the board of directors is directly convened, the request to remove the chairman of the board depends on the voting rights of the shareholders. The specific level of the right to remove the company charter.

Specific to Facebook's case, Yang Zijiang said, it is still necessary to see whether Zuckerberg's stock voting rights are enough to "one vote against the shareholder's proposal"; in addition to see if he has the will to leave the board. "If he leaves the board, he is still a shareholder, and does not affect Zuckerberg to make money, but his influence in the company is bound to weaken."

For the Facebook shareholder's proposal, Lindsley acknowledged that Zumberg is one of the company's largest shareholders to allow SumOfUs' proposal to pass at the annual general meeting. He can join hands with other shareholders to easily veto the proposal. . She said: “In essence, the shareholder proposal is advisory. Even if 99% of the shareholders voted in favor, the board has no legal obligation to put it into practice. However, most board members have realized that they ignore the shareholders. The voice is not wise."