Weighting of Facebook founder Mark Zuckerberg’s shares in the social network to ensure he keeps majority control after the IPO could present accountability issues, experts warn, and could prove a turnoff to investors. Zuckerberg will hold over 28-percent of Facebook once it floats, but thanks to a double tiered stock structure his shares will be worth 10x more in voting power than common stock. That will give him 56.9-percent of overall voting power, or in effect the power to veto any decision he doesn’t think is right for Facebook.
It’s that tight grip on the social network’s future that has some experts concerned. “The public has no say in the control of the board, which in my view is terribly harmful to any notion of accountability” University of Delaware corporate-governance professor Charles Elson told Bloomberg, suggesting that the decision will be “very troubling to investors, and it’s a bad bet for them.”
The way the IPO has been organized, other stockholders will be able to own more of Facebook in financial terms, but still be subject to the whims of Zuckerberg in voting terms. The founder will also be able to designate his successor, assuming he is still in control of Facebook at the time of his death, and avoids the requirement of forming a compensation committee and a board of predominantly independent directors as it classed a “controlled company.”
However, being under the thumb of the young billionaire may not be as bad as Elson makes out. Studies into firms where the founder is CEO and dominates the direction the company takes indicates they may in fact perform better than average, according to data dug up by the CSMonitor. “Founder-CEO firms invest more in R&D, have higher capital expenditures, and make more focused mergers and acquisitions” Rüdiger Fahlenbrach, of the Ecole Polytechnique Fédérale de Lausanne and the Swiss Finance Institute, found in a study back in 2007.
Any lingering concerns could well be to do with Facebook’s perhaps unique position at the moment, poised between traditional social network and all-encompassing platform. The site has taken several steps to broaden its footprint in recent months, including the Open Graph apps and signs that Facebook might make a greater play toward its ever-increasing mobile userbase.