Facebook: Zuckerberg’s dominant control questioned

Feb. 5, 2012 - PRLog -- The notion that a public company making its debut on the stock market with a value in the region of $85-$100 billion should remain under the voting control of one person, however successful he may be, is hard to swallow.

That is the conclusion of a senior accountant after reviewing the draft of the prospectus being issued to prospective investors in the phenominally successful social media network Facebook over which its founder Mark Zuckerberg has overall voting control.

Writing in "Marketing Services Financial Intelligence", Bob Willott points out that there are so many past examples of dominant directors either abusing their power or autocratically steering their empires on to the financial rocks that “it beggars belief that the US Securities and Exchange Commission would still tolerate such a situation”.

Willott is a former technical director of The Institute of Chartered Accountants in England and Wales and a former special professor at the University of Nottingham Business School.

“Of course Zuckerberg’s success deserves to be applauded”, Willott says, “and he will be suitably rewarded in the value of his shareholding.”

“But a publicly owned company is just that.  It can no longer apply the decision-making framework that has suited the entrepreneurial talents of Zuckerberg in the past.  That is a price he should have been prepared to weigh in the balance before seeking to share the ownership of his business with the general public and elicit money from them.”

Under US rules, a publicly listed company that remains under the ownership control of one person is explicitly excused from some of the corporate governance safeguards that any ordinary investor might reasonably expect, Willott says.  

“Yet surely it is the very fact that, after becoming a publicly owned company, its management could still remain open to excessive influence by one dominant shareholder that makes it even more important that board decisions are made by a body of people over which he cannot exercise over-riding control.”

The Facebook prospectus explains that the company is not required to have a majority of its directors to be independent, or to have a compensation committee or an independent nominating function, adding:

“In light of our status as a controlled company, our board of directors has determined not to have an independent nominating function and to have the full board of directors be directly responsible for nominating members of our board. Additionally, so long as the outstanding shares of our Class B common stock represent a majority of the combined voting power of our common stock, Mr Zuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company.”

Willott points out that Facebook is not a little company, struggling to find its way: “ It is a massive business with revenue of £4 billion.  It has been an outstanding commercial success so far, but without stronger corporate governance prospective investors of a nervous disposition should give it a wide birth.”

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"Marketing Services Financial Intelligence" provides financial news and analysis about the marketing communications industry, edited by industry expert Bob Willott, an accountant and former special professor at the Nottingham University Business School