Powerless investors vote overwhelmingly to oust Mark Zuckerberg as chairman

https://www.businessinsider.com/facebook-investors-vote-to-fire-mark-zuckerberg-as-chairman-2019-6

by SirLJ • 7 years ago

333 263 7 years ago

PaulHoule• 7 years ago

And you know, a good board is worth it's weight in gold...

castis• 7 years ago

I wish I was worth my weight in gold. With the current price at about $42,500/kg, and assuming the 8 people on FBs board are an average of 75 kg...

75842500 = 25 M. Sounds good to me.

toyg2• 7 years ago

You may or may not like his products, but Zuck has proven over and over that he learnt from the mistakes of previous techpreneurs. Jobs failed to grasp how public companies work, and was ousted; Zuck made sure this could never, ever happen to him.

Shareholders have nothing to complain about, the structure was known when they bought in. If they are not happy, they can sell to people who trust the man more.

dragonwriter• 7 years ago

You may or may not like his products, but Zuck has proven over and over that he learnt from the mistakes of previous techpreneurs.

Maybe, but this is a horrible example, since the weighted voting rights things was a well-publicized practice in tech startups for just the purpose FB adopted it well before FB did it, not some clever Zuckerberg innovation based on observation of others’ failures. See, e.g., Google.

Bartweiss5• 7 years ago

This got me curious about how Job's ousting actually happened.

In 1985, Jobs apparently owned 15% of the total Apple stock. Wozniak presumably started out with the same share as Jobs, and the early 'garage' team was cut in from his holdings. Markkula became a 1/3 owner as the first investor and third employee, and was likely brought down to 15% as well during the 1980 IPO. The board apparently voted against Jobs unanimously - not to fire him, but to strip him of his management role.

So I definitely don't think it makes sense to claim Zuckerberg 'learned' from this. First, Jobs was never a majority shareholder, simply because there were three founders. Markkula voted against him and Wozniak had already sold many of his shares; this is like Page and Schmidt voting to oust Brin. And beyond that, you're exactly right; Apple went public fast as a consumer-electronics business looking to raise money, while the retained-control 'tech company' model was well-established before Zuckerberg could plausibly have IPOd.

benj1114• 7 years ago

"Shareholders have nothing to complain about"

I'm not aware of any global trackers that avoid dual class shares like this, and I can't very well sell the Facebook bit (I guess I own some somewhere).

I'm from the UK where elections are generally First past the post. In theory I can vote for whoever I want, in practice there are 2 parties who have a chance of winning so half the time I end up voting to keep the other one out. Its a democratic election, but I didn't really have a choice.

That's 2 counter examples to your reasoning.

It's like unfair contract terms. Ideally there would be no such thing, a contract is entered into freely by 2 parties, nothing should be unfair. In practise you need that protection.

kaffeemitsahne• 7 years ago

global trackers

Not Facebook's problem at all.

elections

Not applicable, the choice to not buy a stock is much easier to make than the choice to leave a country because of the voting procedures.

i_am_proteus• 7 years ago

I can't very well sell the Facebook bit

If you don't know any, you can short it.

moosey2• 7 years ago

On the other hand, I think that Zuck is demonstrating that he doesn't understand what the near future holds, based on the geopolitical upheavals we are seeing today. Facebook is going to need to change in order to grow, and Zuck has a specific mindset about privacy, and a nonchalance towards regulation, that probably won't jive much longer if he finds himself in a regulatory environment that actually intends to be effective at its job.

The mistake is compounded by the fact that he thinks that he knows better than those who vote overwhelmingly against him. Facebook needs a new tack, and he is stubbornly maintaining course.

thrower1233• 7 years ago

Facebook can't really grow; that race is effectively over, there are no significant new slices of humanity for it to penetrate into easily. Something like one third of all the people on Earth have a Facebook account, and when you factor in Instagram and Whatsapp, they have just about all the users that there are to have.

bitxbit• 7 years ago

Jobs was a visionary. Mark Zuckerberg, on the other hand, has failed to inspire anything in the industry.

Aeolun2• 7 years ago

I think he’s inspired a lot of things, not all of them good, but it’s really hard to say he hasn’t had any influence.

burtonator2• 7 years ago

This is a pretty common understanding in the valley. 99% of people understand this issue.

The problem is that they often have to take additional VC to keep growing and HAVE to give up control or the company dies.

If you need cash to reach escape velocity there's not much you can do

htkibar• 7 years ago

Whole system was designed so that Facebook did not need to prioritise short term goals such as stock prices over long term ambitions, no matter how good or bad those ambitions might be.

System works, apparently.

salawat• 7 years ago

So, at what point does Zuckerberg become drive the company into such levels of toxicity that every investor does what they should have done in the first place, and pulls out?

If "the Market" truly solves everything, after all, it should be possible to leave Facebook high and dry with no public funding left because Zuckerberg has made his business and himself a veritable pariah.

It probably won't happen though. He's basically set himself up as the subject of a permanent condition of Stockholm Syndrome with regard to any investors.

With a majority vote built in for him, any concession to the public is essentially a "let them eat cake" sort of deal.

georgyo• 7 years ago

Ironically, investors pulling out might be good for Zuckerberg.

If a business is highly profitable but the investors don't see it that way, then it may make sense for him to take the company private again.

This happened with Dell about 6 years ago. Michael Dell believed Dell was worth much more, but the market disagreed. He was able to buy back all the shares and take it private again.

vonmoltke2• 7 years ago

The big impediment to Facebook doing the same thing is that it uses huge RSU grants as a carrot to attract talent. Go private, and suddenly they need to make up for the 40%+ drop from somewhere.

jfengel• 7 years ago

It doesn't really affect FB one way or the other. They made their profit at the IPO. That's all the cash they get out of it. Zuckerberg himself (and other executives) would lose a lot of money if every investor pulled out, but Facebook would continue happily along.

Ultimately, you can't get every investor to pull out because the stocks still entitle them to a piece of corporate profits, even without control. Facebook has a P/E of 24, corresponding to earning about 3% interest. There will always be a market for that cash. (Investors seem to think it will ultimately be more profitable than that, so the price is higher than the last 12 months of profit indicate.)

SuperGent• 7 years ago

The man owns the company, or at least 60% of the vote, and can do what he likes with it. If you don't like it get out or stay out of investing in Facebook, especially if you think that he will bring down the share price.

strathmeyer• 7 years ago

"Sure, but we'd also like to know what the adults think."

vikramkr• 7 years ago

It's his company and his vote, and investors knew what they were buying and that they were investing in zuck more than they were investing in the company. Zuck voting this down is entirely within his rights and justified. There is no obligation to give up power just because others demand it

fredgrott• 7 years ago

sure there is..if future potential investors decide to ditch investing in FB for example..

its called fiduciary responsibility

challenger22• 7 years ago

Do you think the other shareholders would have voted to dump Zuck if they knew he did not have a majority position? This act could have been a protest vote knowing it would only reform his behavior, not remove him.

Similar to how people speculate that Brexit was only voted in because nobody thought the vote would pass- it was a protest vote.

emilfihlman• 7 years ago

Exactly this. If Zuckerberg had done something illegal with the voting power structure, SEC would have ousted him by now. Everyone knew what they were into when buying the stock and if not, the buyers had not done their due diligence, which is not Facebook's issue.

JumpCrisscross2• 7 years ago

If Zuckerberg had done something illegal with the voting power structure, SEC would have ousted him by now

Lots of securities laws, particularly those relating to corporate governance, rely on private enforcement. The lack of SEC action in no way clears Zuckerberg.

yumraj• 7 years ago

It's not his company. It's a public company in which he does not own more than 50% of stocks.

He just has more than 50% voting rights, which should never have been allowed, and should be one of the things that SEC should look at if/when any kind of antitrust probe is done. It leads to deviant behavior by public companies.

Edit:

Some people below are looking at it below from a purely investor standpoint.

I'm not an investor in FB and own no stocks.

I'm looking at the behavior of FB which IMHO is purely due to Zuck, him being unethical (as someone else has also called out below) and the fact that he has unchecked power in how he is running FB. Like in a Government, the Board is supposed to provide the checks and balances in a public company. Unfortunately, due to the voting structure the Board of FB is 100% impotent.

wbl2• 7 years ago

Dual share classes have existed for a long time. If people dont like the share structure they can not invest.

akvadrako• 7 years ago

It is his company - that's basically what it means to own more than 50% of the voting shares.

uncletammy• 7 years ago

It leads to deviant behavior by public companies

From my experience, having majority shareholders don't lead to "deviant behavior" any more than companies with no majority shareholder. In fact, one could argue that many of the ugly collective action problems facing the world today stem from organizations in which nobody has the power to veto unethical policies.

I think the problem here is that Zuck can veto. I think it's that Zuck is unethical.

xivzgrev• 7 years ago

Facebook agreed to certain additional rules (eg quarterly reporting) in exchange for being able to solicit investment from the public. There was no rule against the share classes.

I agree with others. It was well known that Facebook was exclusively controlled by zuck when it went public, and that wouldn’t change. I think the only recourse is to lobby the sec to prevent it from happening in future IPOs.

onetimemanytime• 7 years ago

>He just has more than 50% voting rights, which should never have been allowed

And that what matters in this case. The knew what they're buying, it was a huge debate about it in the media too. All was legal and was disclosed. Personally I would not buy stock in a company structured this way, but if I did, I would not have a right to complain.

malloreon9• 7 years ago

Reminder that the deviant behavior is caused by the employees of these companies. They are responsible for their actions, and for continuing to work there despite the evil they do every day.

dexen• 7 years ago

Plot twist:

the worth of shares in the hands of the investors is highly dependent on Zuckerberg being at the helm & maintaining Facebook on the course.

If they ousted Zuckerberg, or curtailed his power to make decisions, the shares' worth would enter a slow, but inevitably terminal, decline.

Side note, I disagree with, and condemn Facebook's certain practices. The above post is only to indicate the company as a whole is a highly efficient money making machine.

Aeolun2• 7 years ago

He started it. He’s owned it right up until the IPO, and still retains 60% of the voting power.

I’d say that for all practical purposes he controls it (but not owns).

Good thing too. Facebook wouldn’t be the same without Zuck.

esoterica• 7 years ago

The idea that a Facebook run by the shareholders would be a kinder, gentler, less evil company than the current iteration of FB is laughably naive. When shareholders revolt against management it’s almost always because they want the company to be more ruthless about cost cutting and boosting profits at the expense of customers and employees. You really believe that a Carl Icahn type is going to spend billions of dollars buying up a bunch of shares just to pressure Facebook into being more socially responsible?

maxlybbert5• 7 years ago

He just has more than 50% voting rights, which should never have been allowed, and should be one of the things that SEC should look at if/when any kind of antitrust probe is done.

S&P refuses to add companies with dual-class stock to the S&P 500 or other benchmarks they control (Facebook was grandfathered in).

But I try to invest my 401(k) according to what I understand of academic research, and they never mention the importance of avoiding dual-class stock ( https://web.stanford.edu/~wfsharpe/art/active/active.htm ). I understand that some people have personal crusades about this or other questions of corporate governance; but those are their crusades, not mine, and they aren’t responsible for my financial well-being.

skinnymuch6• 7 years ago

It leads to deviant behavior by public companies.

I haven’t seen this be true any more than public companies where stocks are directly equal to voting rights. Why would it be any different?

kevin_b_er• 7 years ago

I'd call it a non-public corporation. A public corporation is one who's ownership is distributed among the public. The public does not have distributed ownership, as ownership would imply control. The public so-called=ownership has ZERO control over the corporation as a private entity has ALL control. As such, facebook is not a public company by the common meaning.

It is a public company in label only. This is a psuedo-public company as long as a single individual owns/controls the company.

JumpCrisscross2• 7 years ago

There is no obligation to give up power just because others demand it

Kalanick also had a voting supermajority. Granted, Uber was unprofitable while Facebook is anything but.

But if the fines and investigations and antitrust actions steam along, and shareholder lawsuits pile up, Zuckerberg’s position of strength could change.

TL; DR This was a showboat vote. Not only did it have zero chance of passing, it’s also not binding. But few leaders survive a consistently-antagonistic independent minority.

village-idiot• 7 years ago

There is no obligation to give up power just because others demand it

No, but it would be a very good idea. Facebook insiders repeatedly have stressed that Zuck isn't a very good CEO, and that he really is much more fit for a CPO type role. That he apparently refuses to listen only reinforces the validity of this feedback in my mind.

Waterluvian2• 7 years ago

So I want to understand this concept better.

What if Zuckerberg declares a new mandate for Facebook; something legal but manifestly harmful to the company. Say he decides, "let's shut down ALL advertising and sell ALL of our work computers for a penny and make everyone take turns doing their job on a single PDP-8 located in Siberia." Is there any recourse for all the investors/stockholders other than scrambling to sell ASAP?

Or put another way, is Zuckerberg legally allowed to run the company into the ground if he felt like it?

creaghpatr• 7 years ago

At some point if you extend that example far enough he could be sued for gross negligence or something like that- in the case you mention, someone having to slave in the proverbial gulag is gonna get hurt which would expose Zuck if he unilaterally issued those orders against the advice of everyone else. IANAL

horsawlarway• 7 years ago

Or put another way, is Zuckerberg legally allowed to run the company into the ground if he felt like it?

It depends on how he runs the company into the ground, and his state of mind while doing it.

A CEO has a fiduciary duty to the shareholders - The CEO is supposed to act in a way he believes benefits the shareholders.

They also have duties of Care -

They must evaluate business decisions and agreements after taking into consideration information and input from shareholders/board/experts/employees etc

Loyalty -

They must act in the interests of the company and it's shareholders, putting this above decisions about their personal finances or outcome

and Disclosure -

They must inform the board and shareholders about challenges facing the company, or issues the company is having.

----------

That said... There's serious protection for the CEO in the "Business judgement rule" which says that as long as the CEO Fulfilled the above duties and acted openly and honestly - He's protected from any liability if the company loses money based on decisions he makes.

So if Zuckerberg stated: "I will kill Facebook by intentionally making terrible decisions" then no - he's not allowed to do that at all, and will likely face many shareholder lawsuits.

bongobongo2• 7 years ago

This is a very narrow analysis that fails to account for any metric beyond the financial regulatory system, so I'm not surprised that it has led you to a strange and irrelevant conclusion.

The metric to apply here is a moral one, and that's the one where Zuckerberg both fails to justify himself and fails to rise to minimum expectations of duty and obligation. It's also the metric that most people are applying in this situation.

FailMore• 7 years ago

I think MZ does think long term, is taking privacy seriously moving forward and is good for the company. (I was, but am currently not, an investor in FB)

strikelaserclaw3• 7 years ago

FB need Zuck now more than ever, otherwise it will become a middling company run by an unimaginative middling corporate "CEO". FB is a potential goldmine, they have not even made a fraction of the money they are capable of making. Monetizing instagram, monetizing watsapp, making watsapp the default way to send money, effectively becoming involved in banking, they could literally copy wechat and become print money because of the strong network effects fb has.

finnthehuman• 7 years ago

otherwise it will become a middling company run by an unimaginative middling corporate "CEO"

And this is distinguishable from the last 5 (+?) years of Zuck how?

anonymousab• 7 years ago

Facebook has not gone anywhere near as far as they could in the pursuit of profits. The past few years have been comparatively benign, based on public knowledge at least.

save_ferris• 7 years ago

Profits over privacy, over people, over the security of elections. He’s repeatedly failed to address scandal after scandal of his company.

Scariest of all is that people like you don’t even seem to care. It’s totally OK to violate privacy, permit foreign actors to undermine elections, as long you make a ton of money.

joering2• 7 years ago

Apparantely how its done in “corporate america” since our government allows it and approves it.

Btw: friends don’t let friends do Facebook.

thrower1233• 7 years ago

I'd be more concerned that it is apparently fine for Facebook employees to dox random anonymous users to gossip rags like the Daily Beast.

ip26• 7 years ago

Of course, none of those things are something I expect a faceless suit to do any better at.

strikelaserclaw3• 7 years ago

If people loved their privacy so much they would stop using FB, Watsapp, Instagram, Google etc...None of the FB products are really even necessary (I know because i don't use any of em). They would vote with their behaviors so the corporation changes. As for the meddling in elections, it merely revealed what america is really like. Even if FB didn't exist, we were eventually going to get where we are today. As for people like me, like 98% of HN would take a job with FB if it paid them the right price, the 1 % have better offers so they can take the moral high ground without really sacrificing anything, so really where is the "morality" of all the people. FB is a scummy corp, but they are more or less just as scummy as many corporations we have in modern day america, it is just that they are easily visible as a target.

repolfx• 7 years ago

He hasn't addressed these scandals because there's nothing to address - the "scandals" are entirely artificial, whipped up by the same frenzied political climate that convinced half of America Trump is a Russian spy.

Let's look at Cambridge Analytica?

• Not proven anything they did actually affected anything. The assumption it did relies on a lot of controversial beliefs about human nature.

• Data was obtained through a middleman who violated his own agreements with Facebook - an academic who has mysteriously not been held to account for this behaviour. Somehow it's all Facebook's fault.

• They restricted data access to apps anyway. Not much more they can do beyond terminate all API access to Facebook data, which would just get them in trouble of a different kind.

There's nothing more Facebook can do here. Zuck's biggest mistake was not to go in all guns blazing in defence of the company and adopt a head-hanging mea culpa type attitude, which allowed his political enemies to frame it as a scandal when it simply wasn't.

Likewise, "election interference". It's all nonsense. A few hundred thousand spent on ads for both parties by Russians? A whole lot of innuendo and lies from the press? Indeed the entire assumption that Russians = Russia = the Kremlin is absurd to begin with. Zuck should have very forcefully and bombastically slapped down this kind of talk. He failed to face down the anti-Trump mob and now the mob failed again to get Trump impeached, they're coming for him instead.

zild3d• 7 years ago

Not sure what you mean by "monetizing instagram". Instagram's ad revenue is already around $10B no? Plus they've added in-app shopping

Nasrudith• 7 years ago

I think this highlights one of the oddities of the current shareholding investment system and how oddly "broken" it is on several levels. Wall Street has become infamous for being a horde of locusts seeking short term growth for one.

Most smaller investors wish for long term growth while being spooked by bad short term and charmed by short term growth. Most don't engage in voting and may not even have control of their vote but their broker.

Perhaps some of it is from fundamentally wrong assumptions about division of management and incentives. Especially given multiple ownership is possible the assumption shareholders care about the long term health doesn't actually hold. Voting system may be influenced by older school thinking that it was more like a country or smaller scale venture.

It is entirely possible for a large vote holder to push for short term policies and get out on top - and it wouldn't even be misconduct let alone something enforceable.

I wonder what a better system could look like - and how better would be defineable for that matter. With another layer in "how could it be introduced?". Since if it is just a matter of starting your own and proving it works better that hard task is ironically easy compared to say changing FTC rules.

granshaw• 7 years ago

Check out the Long Term Stock Exchange

chumali• 7 years ago

The LTSE wants to give startups all the benefits of being public whilst encouraging long-termism through tenured voting and other gimmicks.

It seems that Zuckerberg has already achieved this however by retaining voting rights. That hasn't stopped investors from pouring money in to FB.

Why would any founder then decide to list on LTSE rather then just implement a dual class structure? Perhaps if market conditions were to change, but right now there appears to be no shortage of investor cash looking for a home.

travisoneill1• 7 years ago

People who bought non-voting shares would like their assets converted to something that has more value? I am shocked!

takanori• 7 years ago

Who would they replace him with?

JackFr• 7 years ago

It always annoys me when people liken the stock market to gambling. I understand how buying a stock, in one sense, may feel like placing a bet. But in reality it's ownership of an ongoing commercial enterprise and as an owner, the right to choose and guide management is one of the things that makes it more than simply a bet.

But Facebook stock? Literally a bet on Zuck.

apo• 7 years ago

Yet they fail to put their money where their votes are by simply selling Facebook shares.

Regardless of what happens with Zuckerberg, Facebook's best days are behind it. The notion that a change in leadership can right this sinking ship makes no sense.

michaelt• 7 years ago

  Yet they fail to put their money
  where their votes are by simply
  selling Facebook shares.

Wouldn't that imply that no shareholder resolution should ever pass? And boards shouldn't be accountable to anyone?

buckminster• 7 years ago

It would just mean that nobody would invest in the small number of companies designed to have an unaccountable board.

Bakary3• 7 years ago

They own the next generation of social networks, I don't see why they would stop doing well. Unless you mean just the Facebook service itself.

ddingus2• 7 years ago

They can always sell.

OJFord2• 7 years ago

Some clearly have been, or have wanted to; hence the downward pressure on the stock price.

Not owning stock isn't the same as wanting different governance though - an investor might like the fundamentals, and think it could go further, but not under its current x.

geggam• 7 years ago

What is interesting to me is how shareholders seem to kill corporations when they are allowed to vote the direction of the company.

Direct Democracy ?

burtonator2• 7 years ago

One dollar ? one vote?

heymijo12• 7 years ago

Flip this perspective.

Zuckerberg has iron-clad control of FB.

He could unilaterally decide that quarterly profits, hell, any profits, do not matter and there is nothing anyone could do.

Keep that in mind when it's discussed that FB can't really do anything about the problems it has spawned because it is part of the financial system and governed by Wall Street.

No, it is governed by Mark Zuckerberg and he can do whatever he wants. Every last dark pattern and shady thing they are pushing for with engagement, ultimately, he and he alone is is responsible for and condones.

Every other CEO on the planet has the "but the quarterly earnings" boogeyman to fall back on as a scapegoat for their malfeasance. Zuckerberg, due to his shrewd engineering of stock classes, does not and we should do well to remember that.

malloreon9• 7 years ago

Every last dark pattern and shady thing they are pushing for with engagement, ultimately, he and he alone is is responsible for and condones.

This is absolutely 100% FALSE. Every single person who works on those dark and shady patterns are responsible for their actions. They choose to work for evil every single day because the money is more important to them.

Why do we give tech employees a moral and ethical pass for the terrible things they do just because they work for a company?

These engineers don't work with blinders on, they know that every line they commit is ultimately in service of getting more people addicted, and more clicks on facebook ads.

Someone above them may tell them to write that code, but they choose to write each line when they could be working somewhere else. Last I heard, facebook hires supposedly intelligent people, I daresay they'd be able to to get a job elsewhere.

They choose not to.

celticninja3• 7 years ago

But the buck stops with Zuck.

mjfl3• 7 years ago

They choose to work for evil

that's quite an extreme view. Have you ever considered you might be mistaken?

heymijo12• 7 years ago

You're right. Thanks for calling that out.

quotemstr2• 7 years ago

Who gets to pass judgement on engineers for writing code? Who decides what code is ethical? You? Why should anyone listen to you on this matter? Why not me? Why not my dog? The shareholder system of control is at least honest and transparent. Calls for moral boycotts are either ineffective or put power in the hands of the self-righteous, and I think that's far more dangerous than shareholder votes.

5trokerac35• 7 years ago

The last thing I am is a FB apologist, but your statement belies a lack of understanding of how large tech organizations work.

The development process at a company the size of FB is so fragmented that the number of people who actually have a full view of the sum ethics of the platform generally reside at the Director level or higher.

Does the engineer who maintains the code for tagging photos with facial recognition know anything about what happens to that data after? Does the person who works on content filtering algorithms know what language rules another person is going to put into them? Does the person working on optimizing databases know who's been given carte blanche access to that data via APIs?

To use an extreme comparison, there's a reason the entire German army wasn't hung at Nuremberg.

notatoad2• 7 years ago

The software developer who wrote an evil feature bears some responsibility, but that doesn't lessen zuckerberg's responsibility. If the developer is 30% responsible, Zuckerberg's responsibility isn't capped at 70%. he's also responsible for that developer.

As the person with sole absolute authority over Facebook, he is 100% responsible for everything that happens, in addition to whatever responsibility the people under him bear

mekane8• 7 years ago

I would say Zuck is "Accountable" for all of the dark patterns and shady things. That's on him as CEO. The teams that implemented them and the management that signed off all share responsibility.

I'm thinking in terms of a RACI matrix.

joejerryronnie2• 7 years ago

You can literally extrapolate this out to any large corporation. I guarantee I could find something shady your employer has/is doing. Does this mean you support evil and the paycheck is more important to you than the welfare of mankind?

dmitriid• 7 years ago

Every other CEO on the planet has the "but the quarterly earnings" boogeyman

In case of Facebook even this doesn’t apply. Facebook’s earnings are steady/growing [1]

[1] https://www.cnbc.com/2019/04/24/facebook-earnings-q1-2019.ht...

celticninja3• 7 years ago

I think that is the point. He is doing it to increase earnings, he isn't doing it for shareholder benefit, it is for his benefit directly. He could forego some growth in revenue in return for not destroying his users privacy but he, Zuckerberg directly, elects not to.

will_brown• 7 years ago

He could unilaterally decide that quarterly profits, hell, any profits, do not matter and there is nothing anyone could do.

That’s not entirely accurate, see Henry Ford suspending shareholder dividends, raising employee wages and lowering price of cars for consumers to fulfill vision of every American family owning a (Ford) car.

Shareholders sued and won because Ford owed and violated his duty to shareholders.

Since that time the Law has evolved to extend director/officer protections - even allowing officers to raid corporate funds to ensure directors re-elect the officers - but The voting rights don’t relieve Zuck of his duties to other shareholders in his capacity as director and/or officer.

heymijo12• 7 years ago

Thank you for correcting me and providing the historical context.

pytester2• 7 years ago

That’s not entirely accurate, see Henry Ford suspending shareholder dividends, raising employee wages and lowering price of cars for consumers to fulfill vision of every American family owning a (Ford) car.

It wasn't to fulfill any kind of dream or vision. Ford didn't like his shareholders, quality was getting hammered by high turnover and he had a weird paternalistic desire to exert more control over his employees (as well as to head off the looming strike threat).

jogjayr• 7 years ago

Shareholders sued and won because Ford owed and violated his duty to shareholders. [1]

I didn't know about this case so I read about it. It doesn't tell the whole story.

"In the 1950s and 1960s, states rejected Dodge repeatedly, in cases including AP Smith Manufacturing Co v. Barlow or Shlensky v. Wrigley. The general legal position today is that the business judgment that directors may exercise is expansive. Management decisions will not be challenged where one can point to any rational link to benefiting the corporation as a whole. "

1. https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

scottlegrand25• 7 years ago

So if they dumped all their Facebook stock I wonder how that would affect Zuck? I don't like what Facebook is doing right now either, but I also don't own any Facebook stock. if they choose to continue owning the stock despite his behavior, then aren't they complicit here?

I've also floated the notion that if one started putting Zuckerberg deepfake videos on Facebook, I think the thin-skinned tyrant (I mean this is the guy who supposedly threatened employees with a samurai sword in the early days) would suddenly do an about-face about promoting such content.

maxlybbert5• 7 years ago

So if they dumped all their Facebook stock I wonder how that would affect Zuck?

Very few Facebook shareholders bought the stock from Facebook, and virtually none would sell the stock to Facebook. They buy and sell from other investors. It doesn’t matter how much stock I personally have, if I were to sell all of it, it wouldn’t take any money out of Facebook’s bank account.

If I sold enough stock to actually affect the price, other investors would buy it at the lower price and bid it back up. Not only would my action have no effect on Facebook, at most I would help other people get the stock at a better price.

If you don’t want to own Facebook stock, by all means get rid of it. But don’t expect that to cost Zuckerberg any sleep.

neya• 7 years ago

In the same token, I think we should also hold Twitter accountable.

Have you seen their "In case you missed X's tweets" notification spam?

That's the "Some random nobody hosted a watch party" equivalent on Facebook.

And it can't even be turned off.

All this for what? To present to some investor on a powerpoint "Hey, we increased our conversion rates by 2% by faking notifications. I wonder if this is even legal to trick people to use a service by lying to them there's something they need to attend to.

VectorLock• 7 years ago

Every other CEO on the planet has the "but the quarterly earnings" boogeyman

If you rephrase it as "I want to make as much money as possible" it sounds worse but at its base, thats both what every other CEO and Zuckerberg's real motivations are.

cced• 7 years ago

Out if curiosity, what is it that MZ engineered / or accomplished that lead to his current control?

sireat3• 7 years ago

Just your usual "all shares are equal but some shares are more equal than others" dual stock structure that is in vogue these days: Google, Zynga (ahem) and a number of other companies have them.

It still boggles the mind that the investors place such a small premium on the right to vote.

I am trying to see how one could defend this type of structure.

It is the ultimate "having your cake and eating it" deal for the founder.

MZ could build a giant money hole with FB money in Antarctica and there is nothing shareholders could do.

heymijo12• 7 years ago

Good question. Here's the best summary I found. Note, it's an article from 2012. Search "facebook dual class stock structure" if you want to see much more that has been written on the topic.

"A string of voting arrangements outlined in Facebook’s SEC filing show that some of the company’s most powerful shareholders have ceded their voting rights to Zuckerberg, the company’s chief executive. While Zuckerberg only owns 28.2 percent of the Facebook’s shares, the additional “shares subject to voting proxy” gives him an additional 30.6 percent of the voting power, leaving him with a total of 56.9 percent of the shareholder voting power. That gives Zuckerberg full control of the company’s decisionmaking.

Under the arrangement, Dustin Moscovitz, Sean Parker, and a host of other Silicon Valley bigwigs have given Zuckerberg “irrevocable proxy” to control their votes. That means that their shares will swing with his shares.

Zuckerberg also has irrevocable control over shares held by DST, Greylock, Accel Partners, and other major firms and investors — and the voting rights that go along with those shares — in most circumstances.

“This is not common at all,” said Menlo Ventures partner Mark Siegel, who has monitored quite a few IPOs in his time in Silicon Valley and spoke to VentureBeat by phone today.

“He negotiated a very unique deal,” said Siegel of Zuckerberg’s coup. While no one knows exactly why Moscovitz, Parker, and a slew of high-powered VC firms would have given up their votes, Siegel speculated, “I’m sure there’s a point where shares were offered with that as a contingency.”"

https://venturebeat.com/2012/02/01/zuck-power-play/

cameldrv• 7 years ago

That's true, but if he Zuckerberg takes actions that significantly reduce the profitability of Facebook, the stock will go down, and that stock is a significant part of the currency that he pays his employees with. If salaries are cut by a third or more, people will quit and go work somewhere else.

magduf• 7 years ago

Not only this, but these investors had to know, before investing, that Zuck had this control of the company and that they wouldn't get any power at all. So they have no cause to complain.

Bakary3• 7 years ago

The more I learn about him, the more he seems to be the closest we have to a Lex Luthor. I'm simultaneously impressed and repelled by his cunning.

malloreon9• 7 years ago

Is it too much to ask that this vote of no confidence inspires any facebook employees to re-evaluate their life choices and decide to work somewhere else? Maybe somewhere that does good?

I think it's too much to ask, but I hope that it isn't.

tasubotadas• 7 years ago

I dunno. They are on this boat by their own will.

If only there would be a way to ditch a company like this their problems could be solved. A place where you could sell your stake in the company (preferably on a global scale) and buy a stake in a company which doesn't suffer from such issues. Something like a marketplace but for stocks.

¯\_(ツ)_/¯

TAForObvReasons• 7 years ago

Their presence in the S&P 500 ensures that countless people are unaware they are even on the boat, by din of their retirement exposure

coryfklein• 7 years ago

People that own FB stock by way of a general retirement fund probably aren't exercising their right to vote on the chairman.

titanomachy2• 7 years ago

s/din/dint

crazygringo• 7 years ago

I'm curious why it's even legal to sell shares that don't have equal voting power. I mean, equal ownership via shares is pretty much the concept of a public corporation.

Since public corporations are entirely a legal entity (nothing "natural" about them), and so heavily regulated in so many ways to protect investors...

...what is the rationale the US has for even allowing the concept of shares that have less/more votes? It changes the ideas of shares as ownership to more of a kind of financial gambling.

And creates problems like this one, where a majority of ownership thinks a CEO is performly badly but can't do anything about.

I know investors bought shares voluntarily and knew this in advance... but I still don't understand why it's even a choice investors are allowed to be given. How are unequal voting shares good for society in any way at all? It just seems to allow corporations to get the benefits of raising cash publicly without the public accountability that should come with it.

Glyptodon• 7 years ago

I don't understand why a company where one shareholder controls the company and has over 50% ownership can be considered anything other than privately owned.

nknealk• 7 years ago

There are a ton of comments suggesting the non-binding vote will not change behavior. I want to throw some light on the opposite side:

Zuk has a strong incentive to listen to his shareholders even if he doesn't have to. If he ignores them, shareholders are likely to sell their shares driving the price down. This (1) reduces Zuk's overall wealth since much of it is locked up in Facebook equity, (2) reduces the total compensation of many Facebook employees who receive options or RSUs thereby making retention harder, (3) makes recruiting engineering talent harder because few people want to join a sinking ship, and (4) reduces the ability of the company to raise capital in public markets (unlikely a significant consequence for Facebook as they throw off a lot of operating cashflow)

So yes, Zuk voted to not fire himself. That doesn't mean he can ignore his shareholders without consequence.

DenisM• 7 years ago

If you think that majority voting rights give Zuck absolute power, think back to Travis Kalanick - he had all the voting rights in the world, and yet he had to leave.

There's more than one way to put pressure on the CEO, it's just a question of which people want to throw their weight behind the cause.

tschellenbach• 7 years ago

Pretty sure the stock will spike in the short term and then go on an endless decline to 0 if they actually manage to kick him out. Most social companies stumble and fall, Zuck has proven to be insanely talented at seeing the future trends. Think about their push to be mobile first, the acquisition of instagram, whatsapp, social login, shift of engagement to groups and chat etc. They clearly missed the changes in people's perception about privacy over the last few years, but if the past is any guidance they will probably overcome that hurdle as well.

SteveJS• 7 years ago

68% of ‘independent investors’. Would the vote have been less than 50% under an ordinary structure as well? I can’t tell if Zuckerburg would still have been fine under ‘normal’ circumstances.

lowdose• 7 years ago

People achieving enormous success on the top level can become detached from our reality. The chief executive of Goldman Sachs Lloyd C. Blankfein said in an interview (2009) with The Times of London: “We're very important, doing God's work.”

What is the chance Zuck is living in a simular bubble?

Bakary3• 7 years ago

He seems to compare himself to Augustus [0] and to be honest, who could blame him?

[0] https://www.newyorker.com/magazine/2018/09/17/can-mark-zucke...

anigbrowl• 7 years ago

Strange to see the writers describe the revolt as being bloody given that the only bleeding is by the investors banging their heads against a brick wall. Everyone knew about this share structure when they bought into FB, essentially choosing to be passengers on Zuckerberg's yacht. Well, they can always sell their shares if they want off. I'm no fan of Zuckerberg, but investors put greed ahead of good sense.

rdlecler1• 7 years ago

If people want to vote they can sell their shares. I never understood this.

tasssko• 7 years ago

They could sell their shares. Money talks.

Triverklorezam• 7 years ago

Facebook is definitely being mismanaged and has very poor leadership. It shows all over Facebook's business decisions and that it emanates from the top down.

Powerless investors vote overwhelmingly to oust Mark Zuckerberg as chairman

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