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The proposal is a response to Facebook's stock restructuring, ensuring Zuckerberg's control
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If anybody in Silicon Valley feels like a safe bet to keep their job it has to be Mark Zuckerberg. He's not only one of the best known names in tech (having a big hit movie made about you will definitely help with name recognition) but his company is doing remarkably well, growing every quarter and consistently beating expectations.
Yet, there are apparently some concerns about his leadership. Not due to his role as CEO of the company, but from the power he has as Chairman of the Board of Directors. Some shareholders are not comfortable with him holding both positions, seeing it as a conflict of interest, and they want him to give up some of his power.
A letter written to shareholders has outlined a proposal to replace Zuckerberg with "an independent member of the Board," one who would be able to "provide a balance of power between the CEO and the board and support strong board leadership."
"Facebook CEO Mark Zuckerberg has also been Facebook’s board Chair since 2012. We believe the combination of these two roles in a single person weakens a corporation’s governance, which can harm shareholder value," it says in the letter.
Specifically, the letter points to the plan, unveiled last year and approved in June, to allow Zuckerberg to maintain control of the company while also being allowed to give away the vast majority of his Facebook shares. That involved the creation of a new class of shares which, according to the letter, "reduced the rights of Class A shareholders without requiring a majority vote of those shareholders."
As a result, Facebook is currently being sued by shareholders.
Other issues brought up in the letter are the company's issues with fake news, as well as problems with alleged censorship, collaboration with the government and law enforcement, and "targeting of ad views based on race."
All of these issues, it is argued, would be better addressed by someone who didn't have such close ties to Facebook's day to day operations.
The letter was "a coordinated effort" among Facebook shareholders who are also members of consumer advocacy group SumOfUs, which says it "exists to put corporations back in their place."
"We are asking the board of directors to name an independent chair of the board. The role of the board is to oversee the management of the corporation. The board looks out for the shareholders and holds management accountable, so when the CEO is also chairing the board, there is an inherent conflict of interest," Lisa Lindsley, Capital Markets Advisor at SumOfUs, told me.
"This played out last year as reported by Bloomberg. Marc Andreesen, a member of the committee of independent directors charged with evaluating Zuckerberg’s proposal to create a new class of non-voting shares, appears to have been acting with the best interests of Zuckerberg in mind, instead of the best interests of shareholders."
Of course, it's unlikely that Facebook will actually vote in favor of the proposal, or implement it. That's not the point, though, Lindsley said. It's to put these potential problems on the record and to get the company talking about them.
"The purpose of the shareholder resolution is to flag an issue of concern to shareholders regarding how the board of directors looks out for the interests of shareholders, and holds management accountable. Separating the roles of Chair and CEO is a global best practice, and we hope to initiate a discussion at the board level, between the board and shareholders, and among shareholders regarding the need to separate these roles at Facebook," she said.
"This shareholder resolution, like most shareholder resolutions, is advisory in nature. There could be a 99 percent vote in favor of it and the board would not be under legal obligation to implement it. However, most competent board members realize that it is unwise to ignore the voice of the shareholders whose interests they are charged with representing."
It should be noted that five of Facebook's eight board directors are currently independent of the company, including Sue Desmond-Hellman, who is the lead independent director.
A Facebook spokesperson declined to comment on the letter, and noted the company typically issues a statement in its proxy filing, which are filed about two months prior to its shareholder meetings.
This document was first discovered by Venturebeat.
(Image source: forbes.com)
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