Reuters
Mark Zuckerberg, Facebook's CEO and chairman.
- Exclusive: Facebook investor Trillium Asset Management has drawn up a new proposal to oust Mark Zuckerberg as chairman.
- Trillium wants to appoint an independent chairman, citing Facebook's "mishandling" of crises like Cambridge Analytica.
- But the chance of it becoming a reality is slim. A similar proposal in 2017 was popular among independent investors, but was crushed because of Zuckerberg's voting power.
- Activist investors will be emboldened by Facebook's brutal Q2 earnings, however, which could indicate that a sequence of scandals is catching up with the company.
- Facebook has previously said that appointing an independent chairman would create "uncertainty, confusion, and inefficiency."
A Facebook investor has drawn up a new proposal to oust Mark Zuckerberg as chairman, 10 months before the social networking giant's next shareholder meeting.
The proposal, which reflects the strong feeling among Facebook investors that governance changes are essential, was written by Trillium Asset Management, which manages around $11 million (£8.4 million) in Facebook stock.
It was filed just hours before a brutal Facebook second-quarter earnings update on Wednesday, which sent the firm's share price tumbling nearly 24%, wiping as much as $148 billion off its value.
Trillium's proposal, if greenlit by investors including Facebook's own management, would require the company to appoint an independent chairman, breaking up Zuckerberg's dual role as CEO and chairman.
"A CEO who also serves as chair can exert excessive influence on the board and its agenda, weakening the board's oversight of management," the proposal states.
"Separating the chair and CEO positions reduces this conflict, and an independent chair provides the clearest separation of power between the CEO and the rest of the board."
Facebook's "mishandling" of scandals are cited as the reason why the change is necessary. Crises referenced include meddling in the 2016 presidential election, Cambridge Analytica, and the recent situation in Myanmar, where Facebook was blamed for exacerbating the Rohingya crisis.
Trillium hopes the proposal will attract the support of other shareholders. A similar proposal to oust Zuckerberg as chairman was put forward last year and rejected, despite 51% of independent investors voting in favour of the change.
This is a symptom of Facebook's dual-class share structure. Class B shares have 10 times the voting power of class A shares, and it just so happens that Zuckerberg owns more than 75% of class B stock.
It means he has more than half of the voting power at Facebook and therefore the ability to swat away investor proposals. This makes the chances of Trillium's proposal becoming reality extremely slim.
Facebook declined to comment. The company has previously said that splitting Zuckerberg's role in two would create "uncertainty, confusion, and inefficiency in board and management function."
AP
A Facebook protestor on Capitol Hill.
But activist investors will be emboldened by Facebook's disastrous Q2 earnings. Revenue and user growth missed Wall Street's expectations, which could indicate that a sequence of scandals in recent years is catching up with the company.
Trillium's early proposal shows how serious shareholders are about change, according to Michael Connor, the director of Open Mic, an organization that helps shareholders campaign to improve governance at some of America's biggest companies.
"Most corporate governance experts maintain that having an independent chair is simply a very good idea. Filing the proposal early gives Zuckerberg and the company - as well as shareholders - plenty of time to contemplate the issue," he said. "Agreeing to the proposal would be a very big step for Zuckerberg and other members of Facebook's board, so it's a great idea to give them time to think through."
Business Insider spoke to six shareholders last month who control $3 billion of Facebook stock. They want an independent chairman - just like there is at Apple, Google, Oracle, Twitter, and Microsoft - and the dual-class share structure to be abolished.
"The idea that there should be an autocrat in charge of a gigantic public company, which has billions of dollars of shareholder money invested in it, is an anachronism," said Patrick Doherty at the time. Doherty is the director of corporate governance at the office of the New York comptroller, which looks after more than $1 billion in Facebook stock. "It harks back to the 19th century when you had these robber barons who were autocrats and dictators."
Here's Trillium Asset Management's proposal in full:
Resolved: Shareholders request the Board of Directors adopt as policy, and amend the bylaws as necessary, to require henceforth that the Chair of the Board of Directors, whenever possible, be an independent member of the Board. This independence policy shall apply prospectively so as not to violate any contractual obligations. If the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chair.
Supporting Statement:
Facebook CEO Mark Zuckerberg has been Board Chair since 2012. His dual-class shareholdings give him approximately 60% of Facebook's voting shares, leaving the board, even with a lead independent director, with only a limited ability to check Mr. Zuckerberg's power. We believe this weakens Facebook's governance and oversight of management. Selecting an independent Chair would free the CEO to focus on managing the Company and enable the Chairperson to focus on oversight and strategic guidance.
The Council of Institutional Investors argues:
Having an independent chair helps the board carry out its primary duty - to monitor the management of the company on behalf of its shareowners. A CEO who also serves as chair can exert excessive influence on the board and its agenda, weakening the board's oversight of management. Separating the chair and CEO positions reduces this conflict, and an independent chair provides the clearest separation of power between the CEO and the rest of the board.
Facebook has resisted recent shareholder requests to separate these roles. In 2017, according to our calculations, a similar proposal received the support of 51% of the votes cast when excluding the shares of 13 executives and board members. However, the board has not acted on this important signal from its non-insider shareholders.
Google, Microsoft, Apple, Oracle, and Twitter have separate CEO and chairperson roles. More broadly, 59% of the S&P 1500 separated these roles as of April 2018.
We believe this lack of independent board Chair and oversight has contributed to Facebook missing, or mishandling, a number of severe controversies, increasing risk exposure and costs to shareholders. Examples from past years include:
- Russian meddling in U.S. elections
- Sharing personal data of 87 million users with Cambridge Analytica
- Data sharing with device manufacturers, including Huawei that is flagged by U.S. Intelligence as a national security threat
- Proliferating fake news
- Propagating violence in Myanmar, India, and South Sudan
- Depression and other mental health issues, including stress and addiction
- Allowing advertisers to exclude black, Hispanic, and other "ethnic affinities" from seeing ads.
In apologies, Mr. Zuckerberg has stated, "We didn't take a broad enough view of our responsibility." This broader view is what an independent Board Chair would provide, which we believe would benefit the company, its shareholders, and its global community of users.