A corporate governance watchdog group says that Facebook chief executive Mark Zuckerberg holds too much power at the social network.
International Shareholder Services released a research note about the social network's intial public offering saying that Zuckerberg's voting power doesn't size up with his economic interest, according to Forbes. Essentially, Zuckerberg owns a 28.4 percent stake in the company, yet has voting control over 57.1 percent of Class B shares. From Forbes:
The major problem is about moral hazard, or incentives. By curtailing shareholder rights and board accountability, and specifically by splitting share class with drastic differences in voting power, Facebook risks creating two distinct shareholder bases with divergent interests. This, in turn, may and probably will (according to ISS) fuel proxy contests and boardroom/family struggles that ultimately will screw common shareholders.
The ISS is saying that this means regular shareholders have little or no control over Facebook's actions. So if shareholders decide that Facebook is heading off a cliff -- well, too bad, because Zuckerberg just outvoted you -- they have no power to make any changes, despite their own money funding the company.
No one, including the ISS, is saying Zuckerberg shouldn't be CEO, but it does point out that if Zuckerberg wants to take the company into a radical direction, such as selling user information directly to advertisers or totally curtailing any user information to advertisers, shareholder concerns don't matter. Those wanting to buy Facebook shares should keep that in mind -- you are bound by Zuckerberg's whims. Let's hope he's a benevolent dictator and not a despot.
