... im probably on an island alone here with my opinion but...
I'm glad this is being brought to light... and that investors are angry. This sort of action I think should be wildly illegal.
It's removing a great deal of value from one's share. That value is being able to vote. I'm not a FB shareholder but if they had removed my voting power (or rather made it a 1/3 of what it was) I'd want compensation and then I'd sell my shares.
This sort of crap is propagating a big issue: the separation of management and control from ownership of companies. It invites irresponsibility and selfishness because the cost of such to management is continuously decreasing. While the owners (shareholders) are the ones to pay the real price for their actions.
This is how we have problems like CEOs losing money quarter after quarter but still getting bonuses and ever larger golden parachutes...
It's easy to say he's a "visionary" now but the markets facebook has ridden its growth on were not a result of it being amazing. It was a combination of the right time, luck, and a bit of vision (he does deserve some credit). Now that markets are saturated we'll see how truly visionary he is... acquiring for growth targets doesn't make him visionary it just makes him a good business person. If he can't grow it or his vision is off-- it won't matter, if he missteps and costs his shareholders. He and his cronies will still be rich as hell and his shareholders will pay the price.
Facebook stock has never had any meaningful voting right. The shareholders aren't losing anything they never had before.
If you don't like it, don't buy the stock - becoming a shareholder and then complaining about voting rights is an angle shoot.
> problems like CEOs losing money quarter after quarter but still getting bonuses and ever larger golden parachutes...
You're thinking of appointed CEO's. Founder CEO's, especially those with voting control, almost never grant themselves bonuses or golden parachutes (they don't have to, they own the stock)
Well... my apologies for not emphasizing more that it's my feeling of value. Not necessarily the market's... as you're right, by and large the market doesn't care. But their darlings are still performing well.
I think a lot of investors are largely ignorant of the voting fact and I also think, most don't get involved until things go badly; so, we'll see how the long term plays out to really know.
I wonder if there are any other companies with stock structures similar to Google but without all powerful founders that would provide more data on this question? I don't know of any off the top of my head but my knowledge in this area isn't particularly strong.
Not exactly what you're looking for, but several companies have different voting power for different classes of publicly traded stock
> Many companies list dual-class shares. Ford's dual-class stock structure, for instance, allows the Ford family to control 40% of shareholder voting power with only about 4% of the total equity in the company. Berkshire Hathaway Inc., which has Warren Buffett as a majority shareholder, offers a B share with 1/30th the interest of its A-class shares, but 1/200th of the voting power. Echostar Communications demonstrates the extreme power that can be had through dual-class shares: founder and CEO Charlie Ergen has about 5% of the company's stock, but his super-voting class-A shares give him a whopping 90% of the vote. [1]
I don't think you are alone in your opinion. I agree with you.
I found the tone in this exchange particularly galling:
'"The cat's in the bag and the bag's in the river,'' he messaged Zuckerberg. "Does that mean the cat's dead?" Zuckerberg texted back, not understanding the spy speak.
> It's removing a great deal of value from one's share. That value is being able to vote. I'm not a FB shareholder but if they had removed my voting power (or rather made it a 1/3 of what it was) I'd want compensation and then I'd sell my shares.
Fully agree.
> This sort of crap is propagating a big issue: the separation of management and control from ownership of companies. It invites irresponsibility and selfishness because the cost of such to management is continuously decreasing. While the owners (shareholders) are the ones to pay the real price for their actions.
This is a non-issue if your point 1 in upheld. I am happy to own FB shares without voting rights if I am compensated for giving up those rights upfront. I would know that my shares mean no control on the company and hence I value them less over some other company's shares where I have got voting rights keeping everything else same.
> It's easy to say he's a "visionary" now but the markets facebook has ridden its growth on were not a result of it being amazing.
Facebook's growth over the last few years is a direct result of Zuckerberg's decision to get serious about mobile advertising and his acquisition of Instagram.
The entire company was structured so he had control, forever. The only reason to buy stock is if you think he will continue to print money. I think it is refreshing to have a company built to be able to completely ignore quarterly profits and activist investors fighting for short term gains.
I agree with you in principle but this is a special case. Mark Zuckerberg is is as close to bottled lightning as you get when it comes to his vision and leadership of FB. The acquisition and scaling of Instagram was superb. Lesser leaders would have just rolled it into Facebook Photos instead of letting it remain a stand alone product. I have little doubt that Oculus will eclipse this feat. Keeping him happy and focused is in the shareholders' best interest.
> I agree with you in principle but this is a special case. Mark Zuckerberg is is as close to bottled lightning as you get when it comes to his vision and leadership of FB.
Then they should have kept the company private. Once you go public, you have to play by the same rules as every other public company.
That may be true, but then Marc shouldn't have been secretly backchanneling support. He should be asking the tough questions, not advising against the challenges of the board. Did Marc say to the other members, "hey I'm going to give Mark a heads up on this"? Likely not. If Zuckerberg was not allowed to keep control I assume he wouldn't be divesting so I see no benefit to shareholders.
Regardless of how the suit transpires, letting someone maintain control of a public company while divesting themselves of the risk associated with ownership strikes me as a bad idea.
Unfortunately, this lack of regard for minority shareholders seems the norm these days.
Google is a similar offender. Let's not even mention what happens when you buy Alibaba shares, whatever you own is not Alibaba.
The problem arises when company starts going in a direction that most shareholders would object to. What can you do then?
Let's say Zuck ends up owning 10 % of FB but still has the control of the voting shares.
Zuck decides that FB should buy an island and attempt to breed dinosaurs at a cost of cool 50B, should not the other shareholders have any say in this?
Seems ridiculous but what if instead of an island that 50B is spent on building some futuristic headquarters. Ok Apple is going along this path but as a shareholder you should have a say in major decisions.
At least with a company like Oracle there is a possibility that Carl Icahn could raise enough money to put Larry in his place should Oracle start making boneheaded decisions.
With FB you cannot do anything if you do not like the direction Mark is taking the company.
As someone else posted, if you want to call the shots without being subjected to public scrutiny then own 51% of the company or do a private buyout like Dell did.
Again the fault lies with the investors who are not averse to buying phantom claims since there is the next greater fool after them.
On the other hand, you can’t just give shareholders all the power – or you’ll just get corporate raiders, buying 51% of shares, doing a takeover, selling everything valuable, and destroying jobs.
We’ve seen that so often in the past years in Germany, it’s completely ridiculous.
Oh, it’s not profitable. The company usually ends up far in debt from selling off the assets, but the shareholders or the interim CEO they forced in aren’t responsible.
A common scheme is buying control of a company when it’s in a crisis, selling off all assets and real estate, forcing them to rent the real estate again, then the company goes bankrupt, after having no assets left, and the shareholders made profit, and the company has to pay huge amounts of debt.
Wait are you saying that the new shareholders take over a company, borrow a lot of money from a bank. Sell off it's assets. Pay all of it's new found cash out to it's shareholders through dividends. Then goes bankrupt, and screwing over the bank?
Well, kinda. Sometimes the government has to jump in to save the jobs, sometimes they just move the pension funds for the employees around and find a way to pay that out to the shareholders, etc.
unfortunately, if a company is trading below BV it means it's expected to destroy jobs on its own. better to put it out of its misery quickly than to allow it to run itself to the ground.
Normally I try to give the benefit of the doubt, when the plan was just to use the funds for the Chan Zuckerberg Initiative it was an acceptable decision to me as presumably Mark's desire for the CZI to succeed would mitigate his risk reduction.
The larger issue to me is allowing Zuckerberg to maintain control while working in government, private and public sector interests shouldn't be comingled like that.
"The cat's in the bag and the bag's in the river," [Andreessen] messaged Zuckerberg.
"Does that mean the cat's dead?" Zuckerberg texted back, not understanding the spy speak.
Andreessen replied: "Mission accomplished :)"
Interesting to note: The Andreessen-Zuckerberg friendship goes a bit deeper. Andreessen's wife, Laura Arrillaga, advised Zuckerberg and his wife on making the $100MM gift to education in New Jersey. Now that Zuckerberg would like to sell his shares for philanthropy, there's probably a good chance they'll continue to go through the Andreessen's for advising. In which case, the Andreessen family will still be making money (not to say that they aren't making money now...) as I'm sure the advising is not free. Win-win.
To me, as a founder (and former a16z portfolio company employee), this sort of thing shows why you'd want investment from a16z. They have a reputation for being founder-friendly. So while this gets spun as some sort of scandal, instead I think this quietly paints a16z in a friendly light.
I'm sorry, but this looks like a selfish, one-sided view.
>The plaintiffs suing Facebook's board include pension funds, like the Employee Retirement System for the city of Providence, Rhode Island, and individual investors
It may be "founder-friendly", but it's hurting thousands of Average Joes.
In the article one of the main points is protecting Zuckerberg's long term control, in the event that he "spent 2 years in government". If that's not telegraphing intent, I don't know what is.
So it appears pretty clear that there's a bigger career game being played here, and it isn't even strictly about stock.
I can see the point, but it could also be argued that a large part of the value of FB is created by the control of Zuckerberg. FB can move much faster without having to move everything past shareholders. And the shareholder's primary interests are making money.
Actually, these obligations apply to private corporations as well as public corporations. It's just that the chance of a shareholder suit is much higher in a public company.
Aren't you obligated to make the highest returns for shareholders? In that case, wouldn't performing an action that slows down the ability of a company to innovate break that promise?
That's a meaningless goal without a specific time frame. And of course, the moment you do specify a time frame, you also define the range of what you'll actually do in ways that flatly contradict what you'd do with different timelines.
For example, if you're trying to maximize cash on hand in the very short term, you simply stop paying your bills and declare bankruptcy when creditors attack. But if your goals are further out, this becomes the exact wrong strategy. Whatever your goal may be, you need a time frame to determine what is and isn't a good use of resources in realizing it.
Conversely, anyone who says "maximize shareholder value" without specifying a time frame is either a fool or a grifter. You can imagine how well things go when these types get together and "agree" on something this dangerously unbounded as a fundamental operating principle.
You get a lot of leeway. There is basically a rebuttable presumption you are acting in the companies best interest. But I wonder if that presumption should be weakened in the cases where the CEO has dictatorial powers over the company without a corresponding share of equity.
Even if you own a majority of voting shares, it's a basic principle of corporate law that you still have to treat shareholders equally, you still have to act in a way to maximize shareholder value, and you still have to consult the board & shareholders on the same issues. Owning 51% of voting shares doesn't turn the company into your private fiefdom.
Why even have an analogy. There is a perfect Example of Michael Dell wanting more control, and getting together with others to buy dell back, and its no longer publicly traded. They can not have to worry about shareholders, when the (for example) decide to buy EMC..
As a founder perhaps, but they have more relationships and reputation to manage than just with founders. It appears as though Andreesen was considered a trusted board member enabled to negotiate in the shareholder's interests, and as you say he was founder friendly instead.
Probably a one time thing they don't have to worry about too much. But do that a couple of times, and they might start to have problems finding co-investors on bigger deals if the perception is that the investors won't hang together as a class.
Right. If the Bloomberg (plaintiff) portrayal is accurate, then this is pretty open and shut. I mean, actively texting Zuckerberg 'steering' hints during the interview which is supposed to be about protecting the rights of _all_ shareholders?
or does it represent a lack of respect for fiduciary duty and a willingness to bend law and ethics to serve yourself?
Wouldn't it be a bad signal that this person, if on your board, might pull a similar thing but to your detriment?
Say if FB wanted to acquire you, would he take your side or MZ's? Would he give you advice that was beneficial to MZ but detrimental to your company?
To be clear I'm not saying MA is actually guilty as the lawsuit alleges, but I'm assuming the facts are true since your conclusion relies on the same premise.
Fair enough, but as a special committee member he's supposed to be working on behalf of the other stockholders. If you were one of those stockholders, would you be happy to learn he seemed to be coordinating with the other side during negotiations?
Don't you think, just maybe, there's a strong inherent bias in your statement?
I'm going to be blunt but when was the last time a16z had a hit on their hands?
Help me understand the branding value of a16z because I didn't get any of that vibe from the article. Also most founders aren't multi-billionaires to boot, so I don't see the connect.
1) The article highlights that a16z is founder-friendly.
2) The lawsuit alleges that Andreessen acted against the behalf of shareholders that he has a legal obligation to protect.
Part of the thesis that a16z operates under is that great companies keep their founders as CEOs longer and more often than non-great companies. So on the surface being founder-friendly doesn't have to imply a legal conflict. The argument that the lawsuit rests on is that common shareholders would be better off (had a high price) if Zuckerberg lost his special voting rights. In the end it's a moot point. If the board wouldn't let him do it, he would have postponed the charitable foundation.
Right, and Andreeson was appointed to the special committee as someone who had the least financial jeopardy from whatever decision was made to protect the interests of those common shareholders, i.e. specifically to investigate contrary viewpoints.
Instead, he sent a crib sheet to Zuck, scripted potential responses to questions so Zuck "knew what they wanted to hear", and even texted him in the board meetings to provide live coaching.
Well, I know a couple of guys in prosecutor's office. They're good friends of mine actually. If I had trouble with the law, they would take care of it. (I'm not talking about US here — for this guys, business like this is nothing from the ordinary. When they want to get drugs, they just turn to the buddies in narcotics division). Such good friends they are.
But asking for this friendly help would also be a violation of the law and in general, not a very ethical thing to do.
This actually means they have good PR. If you were raising money, doing proper due diligence would reveal just as many issues with them as everyone else.
Marc's point about the governance requirement being moot because the government would require Zuck to give up his position in FB anyway is particularly poignant now. The government certainly hasn't figured out what to do with PE Trump and his business interests, nor the interests of the other billionaires he's appointing to key positions.
Trump is also unique from pretty much anyone else in government with regard to conflict of interest law, as is part of the discussion now. Given the term mentioned was two years for Zuck, he couldn't be president and remain in control of Facebook.
The whole notion of different stock classes for plebs vs insiders is a racket, anyway. It makes no sense that someone could own a small minority of shares and yet still exert total control over a company. If you want to raise money and put yourself on a market without giving up control, you issue bonds like companies have done for years.
Nobody forced you to buy Facebook shares. The stock classes were disclosed at IPO. These were the terms. If you want to buy into a company and have control, buy some other company's stock.
This was the question I wanted answered as soon as the article quoted specific texts.
It's possible that these things weren't monitored, but were disclosed as part of the suit. Even so, I'm a bit surprised that an exchange like this was retained at all, rather than run through an encrypted texting app and the history regularly deleted. It's one of those stories where the existence of the records is at least as surprising as their contents.
They uses SMS text messages, which were subpoenaed as part of the lawsuit, and disclosed as part of the suit filing with the Delaware court. Their communication was not monitored at the time.
Under U.S. securities law, the term “insider” is technically used to refer to any individual who is an officer or a director of an issuer or who is a beneficial owner of more than 10% of any class of an issuer’s outstanding securities. Insiders are subject to special reporting requirements and certain other restrictions upon their ability to trade securities of the issuer. Because of their relationship with the issuer, these individuals are also more likely to become aware of material, nonpublic information regarding the issuer.
However, for purposes of insider trading rules and regulations, insiders are not just limited to those who meet the technical definition of a corporate insider. Any individual who has special access to or otherwise comes into possession of material, nonpublic information regarding an issuer could be considered an insider. If such an individual trades in the securities of the issuer based on this information, he or she is considered to have engaged in insider trading and may be subject to both civil and criminal penalties.
Doesn't appear to have any of the quoted things from the bloomberg piece i.e. the text messages, doesn't mention the Zuckerberg <> Andreessen communication at all
If you are a big investor, the first question during an IPO roadshow of the next a16z-backed company may well be: "a16z, are you leaving the board after the IPO?"
> one of the concessions Zuckerberg wanted -- to allow the billionaire to serve two years in government without losing control of Facebook -- would look particularly irresponsible
So he wants to run for office while maintaining control of the platform where people get their news from?
If you're watching carefully this shouldn't be exactly surprising.
When the Snowden revelations came out Andreessen said that Snowden was a traitor because the revelations didn't reveal anything that anyone in the know didn't already know: that there was a massive dragnet surveillance program by FVEY.
Now, I know I'm a distant minority here when I say that I think that dragnet surveillance is a good thing (I think our opponents are going to do it anyway and we should know what they get, though I'm mostly against secret courts / laws / etc), but what I don't like is hiding information of critical importance from the democracy.
Should we have dragnet surveillance, I say Yes, and I'd like to convince you all of my view; but the critical part is that I don't presuppose myself so important as to label someone like Snowden a traitor just because he's brought to light something that a few of us have known for a while. Andreessen not only argues for dragnet surveillance, he argues that Snowden is a traitor. It's in the same elitist vein as the conflict of interest issue with Facebook. He views himself as above us all. This isn't unique amongst the SV elite, but it usually isn't so hopelessly beyond the pale that it so obviously spills over into becoming obvious.
Does anyone know what happens in the eventuality of Mark's death or incapacity? I don't think control like this is inherently wrong, as it seems to have worked well for Google, but I do wonder what happens after the founders die. These rather extraordinary provisions for control of public companies make sense when being granted to specific, exceptional individuals, but less so as a general power that can be transferred.
So, does anyone know what would happen in that case?
Could someone explain why this would dilute voting power?
Voting power of an investor = votes held by investor / total votes
While the dividend will slash the economic ownership of my class A stock, that stock still has the same voting power because the number of votes and distribution of those votes has not changed.
So he proposed setting up a new Facebook stock class.
The new shares would automatically dilute the voting
power of existing shareholders, because every share
with voting power will split into three shares -- one
that has power, and two that don't.
I think the argument is something like: people knew Zuckerberg would want to get money out of FB, so even though he currently had majority control they expected he would give it up soon. Introducing multiple stock classes allows him to sell stock while keeping majority control, so he's reducing other people's voting power relative to expectations, while technically everyone who had N votes before the split still has N votes after the split.
It's not the split that dilutes things, it's Mark Zuckerberg's sale of non-voting stock. The split changes nothing - the sale means that non-Zuckerberg FB shares have less voting rights per dollar invested. (Basically tautologically, since Zuckerberg's shares have more voting rights per dollar of value).
Wait, Mark Zuckerberg, the guy who screwed one of his initial investors out of a huge amount of stock, now wants to screw his stockholders with inside help from a board member. He could maintain control even if he sells most of his stock and is completely distracted by something else - like running for office.
But, its OK because some of the money would be used for philanthropy?
In a nutshell: when Zuck & friends moved to Palo Alto for the summer to work on Facebook, Saverin decided to take an internship at Lehman Brothers in NYC instead. It became increasingly hard to get his attention, even as his approval was required for a crucial funding step.
Worse still, Saverin then ran unauthorized ads on the platform for a side project of his. He kept asking about parties in Palo Alto.
That's when Zuck decided that enough was enough and started to cut him off.
So it's fair to say, at the very least, that the culture fit wasn't there and that the Social Network movie didn't paint the whole picture.
I think it's also fair to say that Saverin brought all this upon himself by repeatedly failing to show commitment in the company, and that he still got a sweet deal in the end because Facebook wouldn't have been anywhere near as valuable had he remained involved.
Generally yes, but Delaware law provides protections for minority investors when the controlling shareholder is on both sides of a transaction.
Here, the board of directors appointed a special committee of supposedly disinterested directors to review the proposal and ensure that it was fair to the minority shareholders. When a transaction is "blessed" in this way it is very hard for a shareholder to challenge it.
The investors allege that two of the three committee members weren't really disinterested because of their personal and business ties to Zuckerberg.
The risk that the company will ignore or subvert their legal obligation to have a special committee review decisions that impact minority shareholders? No, I don't think that's a risk you accept. We live in a country with the rule of law.
This article seems to have an agenda. It feels like it's intentionally portraying things in a mischievous frame. Maybe that's just because it's getting its information from a lawsuit written by hostile lawyers, but it still doesn't seem unbiased. As an example, the line "While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them." could easily have been written as "While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions."
>"While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions."
The lawsuit is alleging Andreesen had no right to do that, regardless of how you try to colour it.
I'm glad this is being brought to light... and that investors are angry. This sort of action I think should be wildly illegal.
It's removing a great deal of value from one's share. That value is being able to vote. I'm not a FB shareholder but if they had removed my voting power (or rather made it a 1/3 of what it was) I'd want compensation and then I'd sell my shares.
This sort of crap is propagating a big issue: the separation of management and control from ownership of companies. It invites irresponsibility and selfishness because the cost of such to management is continuously decreasing. While the owners (shareholders) are the ones to pay the real price for their actions.
This is how we have problems like CEOs losing money quarter after quarter but still getting bonuses and ever larger golden parachutes...
It's easy to say he's a "visionary" now but the markets facebook has ridden its growth on were not a result of it being amazing. It was a combination of the right time, luck, and a bit of vision (he does deserve some credit). Now that markets are saturated we'll see how truly visionary he is... acquiring for growth targets doesn't make him visionary it just makes him a good business person. If he can't grow it or his vision is off-- it won't matter, if he missteps and costs his shareholders. He and his cronies will still be rich as hell and his shareholders will pay the price.