Mark Zuckerberg turned dressing in uniform into personal trademark.David Paul Morris/Bloomberg
It's not a traditional corporate governance model because Facebook is not a traditional company. So said Mark Zuckerberg, its founder and chief executive, as he announced plans to tweak the capital structure to ensure that he will retain absolute control of Facebook, even if he owns a minority of the stock.
Mr. Zuckerberg can do this because he already controls the company through special "B" shares, which have 10 times the voting rights of the publicly traded "A" shares. However, because he plans to give away most of his economic interest in Facebook to a private charity, he could ultimately lose control. So, how does he keep pulling the levers in the boardroom? He issues a new form of stock, non-voting "C" shares, in a 2-for-1 stock dividend. Easy-peasy.
Almost as easy as "curing all diseases by the end of this century" – Mr. Zuckerberg's other objective, which he will fund with Facebook stock through the charity he is establishing with his wife. The Facebook boss could not be accused of false modesty but he does raise an interesting question: not the one about curing all disease. Rather, What the hell sort of company is Facebook and will investors gain over the long-term from corporate vehicles that are so identified with the interests of one man?
This is not new; the founders of Google, Sergey Brin and Larry Page, announced an almost identical issue of non-voting stock in 2012. It was designed to retain Google's "founder-led" corporate structure and head off any threat to the power of the founder shareholders, whether it be from takeovers, proxy battles or just plain, old ill-tempered and rebellious investors. What is new and disturbing, however, is the subservient and almost reverential attitude of institutions to the behaviour of CEOs who are staging pre-emptive coup d'états and tearing up established principles of governance for joint-stock companies.
Given that Mr. Zuckerberg has raised the question (what is the Facebook company for? ), it's worth reminding ourselves of why limited liability companies exist. Put simply, they exist because the world has agreed on a legal fiction (that a business can be a person in its own right) to solve a legal problem: the need for a business to survive independently of its owners. In other words, it has been (mostly) good for the world that Royal Dutch Shell has continued to trade beyond the death of its founders Marcus Samuel and Henri Deterding.
The first legal recognition that a company could have a separate existence to its owners is thought to have occurred in the 14th century in Toulouse when a court case acknowledged that the Société des Moulins de Bazacle was a legal entity distinct from the mill's owners. We accept that companies can enter into contracts, employ people, sue and be sued, independently of their joint stock-holding owners. The latter have economic rights to a share of dividend and voting rights but the owners of stock are distinct from the company; they cannot claim a piece of it, only a residual interest in the event of it being wound up.
Unfortunately, this elaborate legal construct is becoming a bit fuzzy at the edges because, on the one hand, we now have professional managers of companies paying themselves colossal salaries against the wishes of owners while, on the other hand, we have powerful shareholders who insist that the company is a plaything, subject to their private whims.
There could not be two more different chief executives than Bob Dudley, the boss of BP and Mark Zuckerberg. While the former is a hired hand, who has outraged investors by taking more than is regarded his due from the corporate purse, the latter is an entrepreneur who dispenses with a salary. However, the behaviour of both CEOs is a threat to the delicate balance of interests that is the modern shareholding company.
Both seem to regard the boardroom as their private fiefdom rather than a temporary office to which they have been appointed to do a specific job. Mr. Zuckerberg may be brilliant but he is not Facebook and he is only as good as his last idea. More importantly, his last idea, Facebook, now belongs to the Facebook company, not to him. Unfortunately, Mr. Zuckerberg does not see this distinction as written in stone; instead, he treats it like an inconvenient clause in a contract, to be deleted when necessary.
There is a lot of guff about sustainability among those who dispense nostrums on corporate governance. Sustainability, in the corporate world, is not just about the environment or diversity or even paying all your taxes. Fundamentally, it means the company survives to go on to do better things and that must mean, from time to time, that it survives the CEO and the founder.
The intention to further skew the voting rights of Facebook shareholders comes as Mr. Zuckerberg develops his charitable endeavours. He should be encouraged to carry out his mission. However, the development of new social media platforms that help advertisers target lonely teenagers is surely a distraction from the more worthy objective of saving the planet, and it may therefore be time for the Facebook founder to move on.