Mark Zuckerberg's 57% control of Facebook has hidden risks
Zuckerberg’s majority control over Facebook puts too much power in the hands of one person and may deter potential investors in the company’s initial public offering, corporate-governance experts said.
By Bloomberg | Updated:
SAN FRANCISCO: Mark Zuckerberg’s majority control over Facebook puts too much power in the hands of one person and may deter potential investors in the company’s initial public offering, corporate-governance experts said. The chief executive officer has 56.9% of voting power, the Menlo Park, California-based company said on Wednesday in its prospectus to investors.
He also has the ability to designate a successor in the event he still controls the company at the time of his death, Facebook said in the filing. The 27-year-old , who co-founded Facebook in his dorm room eight years ago, has retained authority over strategy ––even after adding business veterans to the board, including venture capitalist Marc Andreessen and Washington Post CEO Donald Graham. Zuckerberg’s control means directors and shareholders will have less sway over the company’s direction, said Charles Elson, a University of Delaware corporate-governance professor.
“The public has no say in the control of the board, which in my view is terribly harmful to any notion of accountability,” Elson said. Zuckerberg owns 28.4% of Facebook, the largest single stake in the company, and he extended his voting power by implementing a dual-class stock structure in 2009. That gives him shares with 10 times more voting power than common stock, according to the filing. The CEO also gained voting power through agreements with individual stockholders.
He owns an “irrevocable proxy” over those shares, Facebook said. After Facebook’s IPO, shareholders other than Zuckerberg will have “a majority economic position and a minority voting position ,” Elson said. Technology companies such as Google, Groupon and Zynga also concentrated voting power in one or more founders before selling shares to the public.
Though the practice reins in the power of investors, it can assure them that companies will stay the course set by visionary leaders, said David Eaton, vice-president of proxy research at corporate-governance advisory firm Glass, Lewis & Co .
He also has the ability to designate a successor in the event he still controls the company at the time of his death, Facebook said in the filing. The 27-year-old , who co-founded Facebook in his dorm room eight years ago, has retained authority over strategy ––even after adding business veterans to the board, including venture capitalist Marc Andreessen and Washington Post CEO Donald Graham. Zuckerberg’s control means directors and shareholders will have less sway over the company’s direction, said Charles Elson, a University of Delaware corporate-governance professor.
“The public has no say in the control of the board, which in my view is terribly harmful to any notion of accountability,” Elson said. Zuckerberg owns 28.4% of Facebook, the largest single stake in the company, and he extended his voting power by implementing a dual-class stock structure in 2009. That gives him shares with 10 times more voting power than common stock, according to the filing. The CEO also gained voting power through agreements with individual stockholders.
He owns an “irrevocable proxy” over those shares, Facebook said. After Facebook’s IPO, shareholders other than Zuckerberg will have “a majority economic position and a minority voting position ,” Elson said. Technology companies such as Google, Groupon and Zynga also concentrated voting power in one or more founders before selling shares to the public.
Though the practice reins in the power of investors, it can assure them that companies will stay the course set by visionary leaders, said David Eaton, vice-president of proxy research at corporate-governance advisory firm Glass, Lewis & Co .
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