Facebook ‘Sorely’ Needs Independent Board Chair, Investors Say

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By Andrea Vittorio

A group of Facebook Inc. investors is asking chief executive officer Mark Zuckerberg to give up his dual role as chair of the company’s board.

Independent board leadership is “sorely needed” in the wake of Facebook’s plan to issue a new class of shares that would allow Zuckerberg to keep control of the company while fulfilling a philanthropic pledge, according to a proposal submitted by shareholders who are members of the consumer watchdog SumOfUs.

“An independent board chair is a necessary first step to put Facebook’s board on the path to effective representation of the interests of all shareholders,” the resolution says.

Facebook declined to comment, saying it would respond to shareholder proposals in its proxy filing before its annual shareholder meeting in June. Five of its eight board members are independent, with Susan Desmond-Hellmann as the lead independent director.

Share Classes

Zuckerberg and his wife Priscilla Chan promised in 2015 after the birth of their daughter to donate 99 percent of their Facebook stock over time to curing diseases and other charitable work. The Facebook founder would still maintain voting control thanks to a strategy approved at the company’s most recent annual meeting to create a third share class with no voting rights. Investors have sued, alleging one of the board members involved in the process had a conflict of interest.

Amy Borrus, deputy director of the Council of Institutional Investors, said multiple share classes with unequal voting rights are “a big thorn in the side for shareholders” because they end up with less say in how the company is run, even if they do like Zuckerberg’s leadership.

“Facebook’s multiple share classes are being seen as something that other tech startups aspire to for all the wrong reasons,” Borrus told Bloomberg BNA. Alphabet Inc.'s Google popularized the introduction of non-voting stock as a way to insulate founders from dilution. Snap Inc. is now likely to become the first company to go public with shares that have no voting rights.

Facebook also isn’t alone in having a combination CEO-chair. The same can be said for slightly less than half of the S&P 500, including fellow founder-led companies Amazon.com Inc. and Netflix Inc., according to Bloomberg’s environmental, social and governance (ESG) data.

Fake News

The proposal from SumOfUs says separating the CEO and chair would be “especially constructive” as Facebook faces criticism over not doing enough to stem the spread of fake news, hate speech and other issues on its platform.

“It’s an important time to have independent leadership that’s looking out for shareholders that aren’t Mark Zuckerberg,” Lisa Lindsley, the group’s adviser on capital markets, told Bloomberg BNA.

Fake news on Facebook and Google is the focus of another set of shareholder resolutions filed by Arjuna Capital, in partnership with Baldwin Brothers Inc.

“For Facebook and Google, the issue of fake news, which perhaps at one point was a nuisance or not a big management issue, has now become a top-line issue as their platforms are being abused,” Natasha Lamb, managing partner at Arjuna Capital, told Bloomberg BNA.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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