INSUBCONTINENT EXCLUSIVE:
By Gerrit De Vynck and Emily ChasanFacebook Inc
has always had one absolute leader, cemented by a share class structure that maintained Mark Zuckerberg’s voting control even when he sold
Some investors grumbled, but most were happy to stay quiet as the stock surged
This week’s plunge upended that dynamic, increasing calls for changes at the top.
“It’s never an issue until things go wrong,” said
Pivotal Research Group analyst Brian Wieser
He thinks a change in Facebook leadership is inevitable, and said the latest numbers could hasten that
“It’s really hard to imagine the status quo holding.” A Facebook spokeswoman declined to comment.
On Thursday, Facebook fell 20 per
cent, costing investors $120 billion -- the biggest single-day loss for an individual stock in history
Shareholders who had weathered months of renewed debate over Facebook’s role in society and the ethics of its business model suddenly
turned tail when they realized growth had run out on Facebook’s core money-making app
Growth rates will decline by “high single-digit per centages” each of the next two quarters, Chief Financial Officer David Wehner
said.
The loss of faith emboldened voices that have called for Zuckerberg to share more of his voting power and give up his role chairing
the board to a more independent figure.
“Zuckerberg answers only to Zuckerberg,” said Jonas Kron, director of shareholder advocacy at
Trillium Asset Management, which supported a shareholder proposal last year to replace Zuckerberg as chairman of the board
Since Thursday’s sell-off, he has received new phone calls and emails from other investors expressing support
He declined to identify those people.
For more than a year, Facebook and other social-media companies have been under fire from policy
makers and regulators for letting fake news, trolls and Russian manipulators proliferate on their services
Now that they’re cracking down, it’s denting growth, spooking investors
Authentic accounts and real information may be good for business longer term
But Kron said Facebook could have avoided some of the trouble if Zuckerberg’s power was checked by an independent chairman.
Other big tech
companies like Microsoft Corp., Apple Inc., and Alphabet Inc
split the roles of CEO and chairman
suffered its own stock-market plunge this week, dropping 21 per cent on Friday after user growth stagnated
It is roughly the same age as Facebook and has a similar founder-led mentality, but it already has a separate executive chairman.
Zuckerberg
wields too much power, said Calvert Research and Management Chief Executive Officer John Streur
Earlier this year, he grew concerned about Facebook’s approach to privacy and customer data
In April, when he realized engaging with the company wasn’t going to change much, his fund sold its Facebook shares.
"Facebook’s
governance structure remains below industry standards, with a large amount of authority concentrated in the founder and CEO," Streur said
"Shareholder rights are not well respected, limited controls are in place around executive compensation, and concerns have been raised about
the effectiveness of risk oversight, including privacy and security risk."
This isn’t the first time shareholders have publicly voiced
In 2012, California State Teachers’ Retirement System asked Facebook to separate the CEO and chairman roles and dispense with the share
structure that gave Zuckerberg such an iron grip
In April, the pension fund’s Chief Investment Officer Chris Ailman said Facebook’s data-privacy crisis was fueled by Zuckerberg’s near
Calstrs owned more than 4 million Facebook shares at the end of March, according to data compiled by Bloomberg.
When Zuckerberg tried to
pull off a plan to sell almost all his stock while still maintaining control, some investors sued
Last September, just before the class-action lawsuit went to trial, Facebook backed down.
In a post on Facebook, Zuckerberg said he no
longer needed the new share structure because the company’s stock had risen so much he was able to fund his philanthropy without selling
This week’s plunge will force the CEO to off-load more of his shares to keep the same level of donations.
Zuckerberg’s own words show
how much the company could benefit from an independent director on its board, Kron said
In blog posts and during his April appearance in Congress to explain how a Trump campaign-linked firm accessed millions of users’
information, Zuckerberg said Facebook hadn’t taken a broad enough view of its responsibility.
“That’s exactly what an independent
board chair does,” Kron said
Miscalculating how strong the backlash to Facebook’s old policy of allowing third party app developers to port away user’s data could
have been avoided by having someone with a wider, questioning perspective, he said.
Trillium submitted a proposal to separate the CEO and
chairman roles just a few days before Wednesday’s disappointing results
A similar one in 2017 won the votes of 51 per cent of non-insider investors, according to the investment firm
Kron expects that number to rise this time.
“It is difficult to escape the conclusion that there are systemic problems in the ways
Facebook has been managed,” Pivotal’s Wieser wrote in a note before the results
Even if Zuckerberg maintains voting power, having more independent board members would at least give shareholders more of a voice, the
analyst said.
How should Facebook write the job description for a potential independent chairman “Someone with gravitas, someone with
vision, business and technology chops,” Kron said
They’d also need “strong understanding of social impacts
The ability to think through unintended consequences,” he said.
One suggestion: Bill Gates
The Microsoft founder experienced similar rapid growth followed by a period of instability marked by a bruising antitrust battle
After a lost decade, the company emerged stronger, with new leaders and strategies.
“When Microsoft got to the other side of that, they
had an independent chair,” Kron said
“Bill Gates relinquished his chairmanship.”
