Politicians and regulators won’t be the only people who want a word with Mark Zuckerberg. With Facebook’s shares sliding more than 10% since the data breach involving Cambridge Analytica, shareholders would probably also like to quiz their chief executive about how he has been running the firm.
What, though, are outside investors’ chances of exerting real influence? What if, after a few more chapters in this saga, the majority owners of Facebook conclude the “catastrophic failure of process,” as one MP put it, is so damaging that a new boss is required to restore credibility in the eyes of users, advertisers and the outside world?
The short answer is that those investors would struggle to change the boardroom line-up. Zuckerberg owns only about 16% of Facebook but he has 60% of the votes, having achieved control by creating a class of stock with 10 times the voting rights of normal shares.
To British eyes, the arrangement looks outrageous. Dual-voting structures at public companies were largely dismantled in the 1990s when they were deemed an affront to the idea that equal economic risk should imply equal voting power.
In US technology sector, however, they prosper. Technology companies born in the 21st century prefer governance structures that belong in the 19th century. Google, Facebook, Groupon, LinkedIn and TripAdvisor all have unequal voting rights. Snap, owner of Snapchat, even managed to issue a class of share with zero votes.
The thin justification is usually that the founders are geniuses who require complete freedom to pursue their visions. Being truly accountable to shareholders, with their grubby short-term concerns, is a distraction from the pursuit of greater long-term glory – or so the argument goes. It is astonishing that US investors, even in their greed to get on the next tech hit, tolerated such guff. But they did, and still do. Dropbox, an internet storage firm, and Spotify want to take the same route.
One cannot, of course, say Facebook has been asleep to data risks because Zuckerberg is insulated via his super-charged shares. Nor can one say that harder accountability to owners would have made the company do anything differently, such as recognising the risk in allowing political messages to run like commercial adverts on the platform. But a proper voice for shareholders might have helped to puncture the instinctive defensiveness that Facebook displays whenever its “social mission” is questioned.
In the circumstances, the severe reaction in the share price is not a surprise. This is a $66bn company with a boss whose voting power means he cannot be removed against his wishes. That arrangement looks fine in good times – not so when crisis strikes.
GKN v Melrose: the battle continues
Another day, another tit-for-tat round of exchanges between GKN and Melrose over pensions, each side claiming its plan is superior. Who’s right? Actually, that’s the wrong question. It is the view of the trustees of GKN’s pension funds that matters. The trustees have declared that GKN’s version provides “appropriate mitigation” but what of Melrose’s offer of “up to” £1bn? It looks OK to the unpractised eye, but what do the experts think?
They should hurry up and give a view. Voting on this takeover bid closes on Thursday next week and, at the margin, pensions could influence some shareholders. It seems unfair that one side has a thumbs-up and the other hasn’t got an opinion.
Melrose should have done itself a favour by approaching the Pensions Regulator for clearance, as it was asked to do. But the GKN trustees should still speak up soon.