Mark Zuckerberg to be Kicked out as FB Boss!

Mark Zuckerberg should give up some of his control over Facebook by relinquishing his position as chairman of the board, according to a new proposal by a consumer watchdog group and a few shareholders.

The proposal, led by SumOfUs, claims that Facebook’s future success requires “a balance of power between the CEO and the board,” and that without a chairman who is independent of the company, Facebook could act without repercussions against investors.

An independent board chair is a necessary first step to put Facebook’s board on the path to effective representation of the interests of all shareholders,” reads the proposal, which goes on to highlight the need for greater accountability amid controversies over News, harassment and hate speech. The proposal was received by Facebook on Friday, according to SumOfUs; Facebook declined to comment.

About 1,500 shareholders have signed SumOfUs’s previous petitions concerning Facebook’s leadership and decisions, said Lisa Lindsley, capital markets adviser for the watchdog group. Of those 1,500 shareholders, SumOfUs contacted 1,300 to determine their interest in filing the shareholder proposal. Four investors agreed to help.

SumOfUs points to Facebook’s major decision last year to issue new, nonvoting stock as an example of the kind of potentially problematic behavior enabled by having a single chairman and chief executive.

Under the decision, every stockholder in Facebook — including Mark Zuckerberg — will receive two new shares of what it called Class C stock for every existing share. This doesn’t increase the value of investors’ holdings; it simply splits the stock so that one share worth, say, $100 would now become three shares, each worth about $33. The point of all this is to create a large bunch of new shares that Mark Zuckerberg could sell off in order to fulfill his promise of giving away 99 percent of his Facebook shares to charity.

Ordinarily, selling off so much stock would result in decreasing Mark Zuckerberg’s ownership stake in Facebook. But because the new Class C shares were specially and explicitly designed not to have any voting rights, Zuckerberg would not be giving up any of his voting power in the company. As the New York Times put it:

At face value it appears that everyone is being treated equally, but the deal really benefits Mr. Zuckerberg. With a dividend of over 900 million Class C shares, he can now sell his Class C shares and not reduce his voting control. … It ensures that Mr. Zuckerberg will have lifetime control over Facebook.

For investors who have faith in Mark Zuckerberg to continue steering Facebook in the right direction, lifetime control may not be a bad thing. But it also means that, should shareholders turn against Zuckerberg, they will have few ways of opposing his decisions, according to the Motley Fool.

Zuckerberg’s dual role as chief executive and chairman also indirectly contributes to a corporate culture where members of the board tend to defer to his decisions, said Lindsley.

During the decision-making process to create the Class C shares, Zuckerberg formed a special committee made up of three board members to consider the move. The directors on the committee — Marc Andreessen, Erskine Bowles and Susan Desmond-Hellman — were supposed to represent shareholders. But court documents from a later shareholder lawsuit allegedly showed Andreessen sending text messages to Zuckerberg during conference calls in an effort to aid the chief executive’s attempt at persuading investors to go along with the plan.

It’s a symptom of a board that has capitulated to the CEO,” said Lindsley. “Clearly, in this case, you have the directors looking to Zuckerberg as the only authority figure on the board.”

Five of Facebook’s eight board members are independent of the company; Desmond-Hellman is its lead independent director. Appointing a lead director is viewed in business as an alternative to splitting the roles of chairman and chief executive. It is growing increasingly common among U.S. firms, according to a 2010 report by PricewaterhouseCoopers, and most lead directors are appointed by other board members who are themselves independent of the company. Still, 67 percent of companies in the PwC report that have lead directors still combine the chairman and chief executive into a single person.

The United States largely stands out in that respect, according to corporate governance experts. In other developed countries, including Australia, Canada, New Zealand and much of Europe, the chief executive of a company rarely serves as chairman of the board simultaneously. But research has not proven conclusively that one model is necessarily better than the other.

In 2005, researchers from Harvard Business School and the University of Pennsylvania’s Wharton School of Business interviewed the boards of major companies in the United States and Britain. What they found may be surprising: Dividing up the roles of chairman and chief executive did not necessarily result in “more effective leadership” or “better governance.”

The same person acting as chairman and CEO looks suspiciously like the proverbial fox guarding the chicken coop,” the researchers wrote in “MIT Sloan Management Review.” But, they added, “splitting the two positions has its own characteristic problems, and this arrangement is not necessarily a clear improvement over the U.S. model.”

In particular, they wrote, a lack of clarity surrounding a dedicated chairman’s responsibility and roles can lead to mixed loyalties or power struggles that undermine good governance at a company. While it may be easy to delineate running a board from running a company on paper, that can quickly grow murky in practice, wrote Jay Lorsch and Andy Zelleke, now both at Harvard.

For Facebook’s shareholders, those considerations may still be months away; the company is expected to include the shareholder proposal (along with others the company receives) in its proxy filing ahead of its annual shareholder meeting later this year.

This is not the first time SumOfUs has filed a shareholder proposal on split management; in 2015 and 2016, it pushed for a similar vote at the agriculture conglomerate Monsanto. Roughly 20 percent of shareholders supported the measure.