For the fifth straight year, Julie Goodridge has submitted a proposal to Facebook Inc.’s board of directors for a shareholder vote at the company’s annual meeting. Her suggestion: Change the company’s dual-class voting structure — under which Chief Executive Officer Mark Zuckerberg has voting rights that give him absolute control despite owning a minority of the company’s shares.
Goodridge, the CEO of NorthStar Asset Management in Boston, wants to eliminate a special class of shares owned by early investors that carry 10 times as many votes as the shares you can buy on the stock market. Each share, she says, should carry the same numbers of votes.
But there’s a problem with Goodridge’s plan: She can’t advance her proposal at Thursday’s meeting to limit Zuckerberg’s monopoly voting power because Zuckerberg has monopoly voting power. He controls 88% of these more powerful shares, which gives him nearly 58% of Facebook’s voting power. In order to change Facebook’s voting structure and reclaim some of Zuckerberg’s control, Goodridge needs the support of the one man who has the most to lose by changing it.
Which is why, even before any of the votes are tallied, Goodridge knows she will fail for the fifth time.
“We [will] resubmit until we no longer can,” Goodridge said. “Or until the company changes and meets our needs, which obviously they’re not going to do.”
Goodridge represents an increasingly frustrated cohort of powerless people: Facebook shareholders, a disgruntled group following more than two years of scandal and drama at the social media behemoth. Many are worried that Zuckerberg has amassed too much power, and Facebook’s board of directors, which Zuckerberg has appointed, isn’t doing enough to hold him accountable. Even Chris Hughes, Zuckerberg’s former Harvard dorm-mate and a Facebook co-founder, called on the government to break up Facebook in a New York Times op-ed earlier this month. “Mark’s power is unprecedented and un-American,” Hughes wrote.
That power, and those directors, will be at the center of Facebook’s annual shareholder meeting on Thursday. Investors will vote on eight different stockholder proposals, the most in company history. One proposal demands the company explore the possibility of breaking itself into multiple, smaller companies. Another requests that Facebook hire an independent chairman to replace Zuckerberg. Half of these outside proposals have something in common: They aim to limit Zuckerberg’s control over the company he founded.
“He has an impermeable wall around him that protects him from anybody else’s perspective,” said Goodridge.
One proposal aimed at changing the way votes are counted in order to approve Facebook board members, put it more bluntly: “Facebook operates essentially as a dictatorship,” it reads.
Goodridge said that while Facebook was once her firm’s largest holding with more than 50,000 shares, NorthStar has cut its investment to just more than 12,000 shares. Even though the stock has performed well over time, Goodridge said she routinely gets questions from clients asking why they’re still invested in Facebook considering all of the issues facing the company.
“I can’t in all good faith hold onto it,” she said.Facebook’s shares gained 1.8% to $184.32 at 12:55 p.m. Tuesday in New York and had jumped 38% this year through Friday’s close.
None of the outside proposals are expected to pass, because the most important shareholder—Zuckerberg—will not approve them, according to voting recommendations provided by Facebook.
What will pass, though, is Facebook’s plan to re-elect almost all of the company’s existing board members, a group that includes many longtime Zuckerberg allies. There’s one new addition to vote on, Peggy Alford. She recently worked for Zuckerberg at his philanthropic endeavor, the Chan Zuckerberg Initiative, and she is expected to win investor approval.
Some groups are urging shareholders to break up Facebook’s board. Glass, Lewis & Co., which advises investors on how to vote, recommended that Facebook owners reject lead independent director Susan Desmond-Hellmann for failing to better steer Facebook over privacy matters. They also advised voting against early Facebook investor and well-known venture capitalist Marc Andreessen, who is part of a board committee responsible for overseeing risk.
Institutional Shareholder Services, which also advises shareholders on how to vote on corporate issues, is proposing that Facebook investors reject the board nominations for Zuckerberg, Andreessen and Facebook Chief Operating Sheryl Sandberg.
“There is no accountability,” said Charles Elson, who leads the University of Delaware’s Weinberg Center on Corporate Governance. “Zuckerberg appoints [the board members] and he can remove them. They may be called independent, but realistically, with that structure, you can’t be.”
Facebook disagrees. In opposing statements specific to all of the stockholder proposals, the company pointed to Desmond-Hellman, Facebook’s “lead independent director,” as proof that Zuckerberg is indeed accountable to someone. On the issue of Facebook’s dual-class stock structure, Facebook claims that Zuckerberg’s control is a benefit that allows the company to think long term.
“Our recent efforts to improve the safety and security of our community have required significant investment, which has impacted our profitability,” Facebook wrote in its rebuttal. “This level of investment may not have been possible if our board of directors and CEO were focused on short-term success over the long-term interests of our community and our company.”
What’s unknown is whether any changes to Facebook leadership could even help the company at this point. As Facebook faces new privacy and antitrust investigations around the world, U.S. authorities are conducting a criminal investigation into its data-sharing practices.
Facebook’s also nearing the end of a Federal Trade Commission investigation, with a looming settlement expected to cost the company billions for its role in mishandling users’ private data. It’s possible that the FTC will require that Facebook add a board-level privacy panel, though it’s unclear whether such a requirement would actually change the directors on Facebook’s board.
At this point, given Zuckerberg’s total control, an appointment like that may not even matter, said Elson.
“That is meaningless in an organization where the governance structure is a paper tiger,” he said.
It’s unclear what could or would finally push Zuckerberg’s hand. Despite strong interest in these ideas – the proposal to change Facebook’s voting structure received an estimated 83% of the votes that didn’t belong to Zuckerberg last year – it’s clear that shareholder unity hasn’t yet been persuasive.
Still, some shareholders believe it could still work. SumOfUs, which runs digital campaigns intended to apply pressure on powerful corporations, is sponsoring the shareholder proposal asking Facebook to voluntarily explore breaking itself apart. It also started an online petition asking BlackRock Inc., which owns more than 151 million Facebook shares and controls more than 2% of Facebook’s voting power, to replace Zuckerberg as chairman.
Eventually, as more and more investors jump on board with these ideas, the organization believes that Zuckerberg will cave to the outside pressure – even if only to save his own reputation.
“I think he looks like a tone deaf and irresponsible corporate exec,” said Leila Deen, a program director with SumOfUs. “We know that’s not how Mark Zuckerberg wants to be perceived. We know it’s very important for him that he is perceived as doing good in the world.”
Goodridge, along with other shareholders challenging Zuckerberg, plans to be back next year.
“Oh yeah – if we can,” she said when asked if NorthStar Asset Management plans to deliver the same stock proposal a seventh time in 2020. “I feel like we would be doing a disservice by walking away.”