Shareholders start wrestling Zuckerberg for Facebook control

Five Facebook shareholders are fighting back against Mark Zuckerberg’s control of the company he founded after several scandals have plummeted share price.

Citing privacy outrages, political influence, the proliferation of fake news and data leaks, the asset managers are hoping to raise support to remove Zuckerberg as Chairman. The reputation and credibility of Facebook as a business which can effectively operate in the digital economy has certainly been called into question, though considering Zuckerberg himself control 60% of the Facebook voting rights, it might prove to be a difficult battle.

New York City Pension Funds, Illinois state treasurer Michael Frerichs, Rhode Island state treasurer Seth Magaziner, Pennsylvania treasurer Joe Torsella, and Trillium Asset Management are the troublesome shareholders, though the filing should be viewed as nothing more than symbolic. With Zuckerberg’s control over Facebook coming close to a dictatorship, it is unlikely anything will change. That will not prevent investors from complaining however.

At the time of writing, the Facebook share price was standing at $159, having started the year at $181 and reaching a peak of $271 in July. This is the lowest since July 2017, a period which has seen Facebook get grilled by politicians over fake news and political influence, Cambridge Analytica dragging the company down and data breaches leaking personal information to nefarious actors. While Facebook will always be a target for hackers and the bottom-dwellers of the internet, the shareholders are calling into question Zuckerberg’s ability to manage the business.

“Facebook plays an outsized role in our society and our economy,” said New York City Comptroller Scott Stringer. “They have a social and financial responsibility to be transparent – that’s why we’re demanding independence and accountability in the company’s boardroom.

“We need Facebook’s insular boardroom to make a serious commitment to addressing real risks – reputational, regulatory, and the risk to our democracy – that impact the company, its shareowners, and ultimately the hard-earned pensions of thousands of New York City workers. An independent board chair is essential to moving Facebook forward from this mess, and to re-establish trust with Americans and investors alike.”

This is not the first time Zuckerberg has faced a challenge to his reign. Three of the aforementioned funds also supported a proposal in 2017 to create an independent board, though many of the largest shareholders voted against the proposal. This new filing, which also suggests the creation of an independent board chair to improve oversight, is set to feature at the 2019 AGM, with the troublesome shareholders stating they will be drumming up support over the coming months.

What is worth noting is this is not a revolutionary idea. Most other companies, especially multinationals, appoint an independent board to oversee operations and maintain transparency for shareholders. It is common business practice. Perhaps the steamroller success of Facebook and the continuous supply of profits have convinced shareholders this is not necessary at Facebook, but the declining share price is certainly something to worry about. Facebook is under pressure from numerous different governments, consumer groups and regulators, and Zuckerberg doesn’t seem to want to do much about it.

The UK is an excellent example of inaction from Zuckerberg. After ignoring numerous calls to appear in-front of a Parliamentary committee, the UK Government has threatened Zuckerberg with a summons should he ever set foot in the country again. It is difficult to imagine any other multi-national business taking this approach to criticism and condemnation.

While the filing might be nothing more than a PR statement, it is clear the shareholders are not happy with the way Zuckerberg is running the business. Unfortunately, it might appear the socially-incompetent Zuckerberg is under little pressure to do anything about it considering his voting power. Ironically, the social media giant seems the closest thing to a dictatorship the US has to offer the world.

Facebook’s shareholder meeting reveals investor tensions

Investors are demanding and sometimes inconsiderate of the ebbs and flows of the business world, but Facebook’s Annual Shareholder meeting demonstrated the frustrations and fears surrounding the company’s precarious position.

The last couple of months have seen Facebook as the recipient of some pretty intense criticism and scrutiny, primarily from politicians and the media, but this meeting has the potential to cause some very considerable damage. Mark Zuckerberg might be able to ignore MPs in the UK, or brush off ignorant questions from Senators in the US, but awkward and condemning comments from those who are pumping money into the profit machine should be a monumental concern from the ironically socially-inept and privacy enthusiast CEO.

“So if, privacy is a human right as stated by Microsoft CEO and we condemn that Facebook’s poor stewardship of customer data is tantamount to a human rights violation,” said Christine Jantz from NorthStar Asset Management, who was proposing a change in stockholding voting to redistribute control, allowing each share of the company an equal vote.

“It is evident to us that Facebook’s piggybacking of risk oversight onto the audit committee, no matter how well utilized, is not up to the task,” said Will Lana of Trillium Asset Management and Park Foundation, who proposed the foundation of a risk oversight committee. “The purpose of the audit committee is to focus on financial reporting processes, not on big picture risk oversight.”

“Controller DiNapoli recently pointed out that, hundreds of millions of social media users are at risk of being exposed to fake news, fake speech and sexual harassment, if the company cannot enforce its own user agreements,” said Patrick Doherty of the New York State Common Retirement Fund, which co-sponsored a proposal to create an annual content governance report. “Unless safeguards are put in place, the Company is at risk of financial losses and serious reputational damage. Facebook needs to confront that its customers and its investors want protection against abuses of the platform.”

We should point out there are few shareholders meetings where investors stand-up and praise the management team and the operations. The investors are investing to make money, and as far as they are concerned, it could always be done better. But Facebook is generally a company which has been protected from criticism. Generating 50-odd% year-on-year revenue growth consistently offers a bit of breathing room, but not even Q1’s revenue of $11.795 billion, 50% more than 2017, could ease the tensions of scandals, poor reputation management or failure to meet public expectations. Facebook has been protected from many incidents of bad press over the years, but the swell pro-privacy voices is becoming deafening; investors are starting to worry, with some just cause as well.

Recent research from Pew Research Centre suggested other social media platforms are out-performing Facebook for engagement, the business is being sued by Max Schrems for GDPR forced-consent, while there have been calls to break-up the social media empire over monopoly fears and Zuckerberg could actually be arrested next time he enters the UK for refusing to answer questions in-front of a Parliamentary Select Committee. The concerns are becoming very real, very quickly.

Aside from the worries about reputation management and the bottom line, representatives also reacted to various other trends in the business world. The sheer breadth of criticisms aimed at Facebook during this meeting, and of course in the press and political arenas over the last couple of months, is starting to paint a worrying picture.

Fake news and fake accounts were once again concerns, as was inclusion and diversity, with one shareholder seemingly suggesting efforts were nothing more than simple window dressing. Political bias of the organization, as well as the moderators who decide what content is considered appropriate for us, was called into question, as well as the social responsibilities of the company in ensuring rent prices does not destroy the current community in Menlo Park, where an additional 30,000 Facebook employees will need to find somewhere to live.

Facebook was founded in 2004 and its CEO is 34 years old. The company is doing an excellent job at pretending to be an adult organization, but realistically it has only been in existence for 14 years, and only facing genuine inspection since going public in 2012. In this short period of time it has not been able to create the right operating model which stands up against the scrutinies of today economy and society. Multi-billion year-on-year increases on the spreadsheets papered over the cracks in the business for a few years, but there are beginning to widen.