Understood, but as a publicly held company, anyone with enough money can swoop in and buy enough shares to get a seat at the table, whether Zuckerberg likes it or not (people like Carl Icahn come to mind).
So the larger the board, the more power Zuckerberg has, as it's more and more unlikely that everybody resigns. Especially if he starts adding friends.
Dual-class shares should be banned IMO. I know that the people buying $FB do it aware of the stock's limited power, but I don't understand why this is allowed to perpetuate. You're essentially buying shares without any representation. If I own 10% of a company's net worth, I should have 10% voting rights.
With great power comes great responsibility. Unless you're the CEO of a large tech company.
They are doing a dual class offering. The class B shares (i.e. those held by Zuckerberg and other insiders) are going to have ten times the voting rights as the class A shares.
I wouldn't by into such an ownership structure, though to be fair, google has such a structure and those that bought that at IPO have done very well so far.
From the risks section:
As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of XX shares of common stock, representing a majority of the voting power of our outstanding capital stock following our initial public offering. As a result, Mr. Zuckerberg has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr. Zuckerberg has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.
That also depends on the terms of your funding. It's your choice to give up board control; you can negotiate for a majority voting stake, but you have to have negotiating leverage. Zuckerburg not only kept sole control of his company, he also took cash off the table, so even if Facebook tanked in 2006 he would still end up a millionaire.
What the F are you smoking? I'm super glad that Zuck has all the control or otherwise you can count on likes on Carl Icahn to circle facebook like vultures at this point and tear it in to pieces until guts are sold and cashed-in. In fact, I would not buy stock of tech company where visionary founder is not guaranteed to be in-charge. Sure there is 50% chance that they will screw up. But if a VCs or so-called activist investor was in-charge, there is 100% chance of screw up.
In general, if a company’s stock goes way down and that decline is attributable to bad management, then some entrepreneur can gather together a bunch of investors and say “I can run that company better than the yoinks that currently occupy the boardroom. Loan me enough money to buy up 51% of those undervalued shares, and when I take over and turn the company around, the appreciated stock will make us all rich. ”
However, FB Inc. is structured so that Zuck will retain a majority of the voting rights, even if every other investor stands against him (http://www.slate.com/articles/business/moneybox/2012/02/face...), so even if the price goes down to a dollar a share, investors’ only recourse will be to sell before it drops to fifty cents.
Let's assume for purpose of shareholders, I believe Zuckerburg (famously) has majority interest in voting shares.
In practice that should mean he controls who is on the board should they not vote in alignment with his preferences; however, certainly there could be other agreements/contracts the guarantee board seats here and there, that should all be available as a public company I just haven't looked.
At minimum, one would "assume" Facebook required board approval of a $1B+ acquisition.
He doesn't need more than 50% common stock to retain control of the company. Facebook has different classes of stock. Zuckerberg has more than 50% of voting rights based on ownership of certain classes of stock.
Many institutional investors think Zuckerberg has done a great job running the company, and think he'll probably continue to do a better job than a replacement CEO. As such, they want him to continue to run the company to maximise the value of their own shares. Shareholders actually voted to allow a stock split that would have allowed Zuckerberg to maintain his voting majority while allowing him to reduce his ownership share[1], though the split didn't eventually take place[2].
(Also, obviously this isn't true of all startups. Travis Kalanick was a drag on Uber's valuation, even though he can probably take a lot of credit for its rise.)
These different voting classes are controversial, but it's also important to note what rights are not diluted as well. To wit: you get the same dividends as everyone else (hmm...) and the same rights as other shareholders to the furniture if they go tits-up (also hmm...).
And to me that's the biggest argument against these different classes -- for companies that are unlikely to ever pay a dividend, they call into question what shares actually are, and why they should have value at all.
The IPO structures the company so Zuckerberg has ultimate control anyways. He has 28% of the class B shares (which are 10x the votes of the class A shares being sold in the IPO).
Also, it's no secret that Zuckerberg has preferred stock, and anyone deciding to invest in FB goes in with their eyes open knowing that they will have no say in how the company is run.
It is indeed really difficult to sympathise with the shareholders.
You don't need to do this, you can just make multiple classes of shares and only put one class on the market. Zuckerberg personally owns a majority share of facebook, and yet it is publicly traded. Facebook public shareholders have no voting power, because zuckerberg has two thirds of the votes.
No. FB is hardly a public company, even though its shares can be traded on public exchanges. Zuckerberg owns about 28% of the company, but has ~57% of the votes. Shareholders other than Zuckerberg have no say on the Board.
Even FB itself listed Zuckerberg's voting power as a potential risk on its own S-1 filing. ”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.”
I don’t believe this is true. If an Icahn-like activist investor shorted FB and successfully triggered a mass sell off tanking FB stock, it would be really hard for Zuckerberg to survive that pressure, and he’d be financially incentivized not to. You’re right in that the board doesn’t have the power to oust him, but collective investor action could. It’s hard to find people who want to rattle one of the most consistently performing tech stocks, though. Unfortunately, I think the chance of something like this happening is nil.
Not even a major/primary/only shareholder can just do whatever they want. There definitely is a strong separation between Zuckerberg and the company. Even if he had 100% the company still would have to act fiscally responsibly for itself. Read the law.
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