Facebook shareholders have yet again cemented Mark Zuckerberg’s power, despite a cascade of upheavals and scandals at the company under his leadership. And unless Zuckerberg himself cedes his control, that’s not going to change.
Multiple proposals that would have put a check on the 35-year-old executive’s influence at Facebook were voted down at the company’s annual stockholder meeting on Thursday. They didn’t really have a chance in the first place: Facebook’s board had recommended shareholders vote against all of them, and because of the way the social media giant’s shareholder structure is set up, Zuckerberg’s vote is essentially the only one that matters.
And of course he’s not going to vote to take power away from himself.
Politicians, investors, and, increasingly, the public have long questioned whether too much influence within Facebook has been placed with Zuckerberg, who is the company’s chair and CEO. Amid seemingly endless scandals at the company, including Cambridge Analytica, Russian interference in the 2016 election, dubious data privacy practices, and the platform’s role in spreading misinformation, scrutiny of Facebook continues to increase.
Zuckerberg and the current executive team and board thus far haven’t been particularly skilled at solving Facebook’s many ongoing problems. But there’s no way for shareholders to put in place people or systems that might be better able to address those issues.
“They’re having a governance failure now,” Jonas Kron, a senior vice president at Trillium Asset Management, an activist shareholder group behind one of the resolutions, said in an interview with Recode. “And if they can get the governance architecture right, that will make a big difference in terms of putting the company on a long-term trajectory for success.”
Despite its missteps, Facebook’s business is doing better than ever. Its stock price is up for the year, and even a potential multibillion-dollar fine from the Federal Trade Commission hasn’t fazed investors. But eventually, there are likely to be long-term consequences, as Kron and other shareholders are warning.
A Facebook spokesperson declined to comment for this story and instead pointed to the company’s responses to the proposals on its proxy filing.
Which proposals failed — and why they did
Before getting into which proposals failed, it’s worth looking at why they failed in the first place: Facebook’s shareholder structure, which basically gives Zuckerberg the final say in all stockholder votes. In a story for Vox last year, I laid out how it works:
Shareholders in stocks of publicly traded companies have a certain set of rights related to that investment, including the right to vote on certain corporate matters, such as members of the board of directors, proposed mergers and acquisitions, or executive pay packages.
In most cases, one share of a stock equals one vote, but not always — including at Facebook.
Facebook has what’s called a “dual class” structure of “Class A” shares and “Class B” shares. The Class A shares are what everyday investors on the regular stock market have access to, and they’re one vote per share. The Class B shares, however, are controlled by Zuckerberg and just a small group of insiders. And every Class B share gets 10 votes.
According to an estimate from CNBC last year, that means Zuckerberg and insiders control about 70 percent of Facebook’s voting shares, with Zuckerberg controlling about 60 percent. So whatever shareholders are voting on, Zuckerberg and those closest to him get to have the final say.
So it’s no surprise that on Thursday, all the stockholder proposals failed, including those related to the shareholder structure. (The final vote tallies won’t come out until they’re filed with the Securities and Exchange Commission in a couple of days.)
One proposal would have overhauled Facebook’s stockholder structure entirely, so that each share would get an equal vote and Zuckerberg’s outsize influence would disappear. Julie Goodridge, the CEO of NorthStar Asset Management, put forth the resolution this year for the fifth year in a row despite knowing it was all but sure to fail.
She spoke with Kurt Wagner at Bloomberg about the proposal and why it matters. “We [will] resubmit until we no longer can. Or until the company changes and meets our needs, which obviously they’re not going to do,” she told him.
Trillium submitted a proposal that Facebook bring on an independent board chair (as in, not Zuckerberg). The state treasurers from Illinois, Rhode Island, Pennsylvania, Massachusetts, and Vermont and New York City Comptroller Scott Stringer joined in on the proposal.
Kron said he sees Trillium’s and NorthStar’s proposals as a one-two punch at Facebook’s governance. “Neither one individually will fix the problem,” he said. “Neither one is sufficient, but both are necessary.”
The investment advisory firms ISS and Glass Lewis recommended that shareholders vote for both proposals and another that would have required majority votes across all shares for board directors.
Facebook’s board recommended against those three proposals and five others. All of them failed.
At Thursday’s meeting, a shareholder asked Zuckerberg whether he would be willing to step down as chair or otherwise relinquish some of his control over the company. He talked around the issue, speaking about the need for government regulations and better frameworks around social media companies and explaining the measures Facebook is taking in the interim. When the shareholder asked Zuckerberg for a yes or no answer to her original question, a moderator reminded her that the rule was just one question per person, and Zuckerberg never provided a response.
Maybe Zuckerberg isn’t Facebook’s problem, but he’s not the solution either
Under Zuckerberg's leadership, Facebook has been stuck in a cycle of mistakes, public discovery of those mistakes, and apologies essentially since its inception, and current leadership hasn't pulled the social media giant out of it. Just last week, Facebook revealed that it had removed 2.2 billion fake accounts from its platform during just the first three months of the year. It also refused to take down a misleading, doctored video of House speaker Nancy Pelosi that went viral from its platform even after acknowledging it was fake.
Facebook’s structure “leads to a culture of unaccountability, which ultimately leads to problems,” Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, told me last year.
Alex Stamos, the former security chief at Facebook, told Recode’s Kara Swisher earlier this month that Zuckerberg has “too much power” and that he needs to give up some of it. “He should hire a CEO that can help signal both internally and externally that the culture has to change,” Stamos said.
Thursday’s shareholder vote demonstrates that Zuckerberg doesn’t plan on it.
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