Four Questions Raised by Facebook’s Shareholder Meeting

Public Companies Stay Tight-Lipped on Midterm Impact

Facebook’s annual meetings are supposed to be boring affairs. With CEO Mark Zuckerberg controlling nearly 60 percent of the vote, there’s no suspense at the ballot box. And indeed, at last Thursday’s meeting we knew beforehand how the nominated board members (all approved) and shareholder proposals (all denied) would fare.

But this time, the kabuki theater offered drama. The backdrop to the meeting was a parade of scandals at Facebook, the grand marshal of which, is Cambridge Analytica’s improper use of the data of some 87 million Facebook users for its shadowy political consulting business. (Even that one may have been topped by yesterday’s doozy.) A PX14A6G filing from Trilium, the socially responsible asset manager, listed 15 different scandals Facebook has been involved in of late, including accelerating ethnic cleansing in Myanmar. Whether it was Cambridge Analytica or the accumulated weight of ugly stories, Facebook shareholders went into open revolt at the meeting, while an airplane flew overhead with the banner: “You Broke Democracy.”

It wasn’t a bunch of crazies either. The influential Institutional Shareholder Services (ISS) recommended that investors withhold support from five of eight directors on the ballot, including Zuckerberg. ISS also supported five of the six shareholder proposals, including those to:

  • Give all outstanding stock one vote per share (removing Zuckerberg’s super voting powers),
  • Appoint a risk oversight committee, and
  • Produce a report on how Facebook is managing content governance (including fake news and hate speech)

We don’t know how many non-Zuckerberg votes went for them, but four different entities filed PX14A6Gs urging votes in favor of different proposals. That includes Trilium, which lamented Facebook’s “whack-a-mole approach” to crisis management while pushing for the establishment of a risk oversight committee.

In addition to the as-yet-unknown vote tallies, the Facebook meeting raised at least four additional questions.

Is this a nail in the coffin of super-voting shares?

Maybe it’s the overlap with the 2016 presidential election, but shareholders focused much of their ire against Facebook on the undemocratic nature of Zuckerberg’s voting rights (10 votes for each one of his shares). They complained of his “dictatorship-like” authority, and a heckler in the room was removed while shouting: “Shareholder democracy is lacking at Facebook.” Dual-class share systems like Facebook’s are already out of favor with the S&P, which barred Snap (and all other companies that try to use them going forward) from its index over the issue last year. Meanwhile, others say the current CBS-Viacom fight will be the end of dual-class shares. The revolt at Facebook could be another strike against them.

Will proposals be adopted by other tech companies?

Arjuna Capital is the entity behind the proposal asking Facebook to produce a report on how it is curbing the risks of noxious content like hate speech, fake news, and sexual harassment. It took the same proposal to Twitter (where it got a healthy 36 percent of the vote) and Google, which has its meeting Wednesday. Arjuna’s strategy suggests that going forward, we can expect to see other tech companies face shareholder proposals similar to those that Facebook is forced to vote on.

Will socially responsible funds abandon Facebook stock?

At least one European bank, Nordea, has prohibited managers of its sustainable funds from investing in Facebook for at least three months. If socially responsible investment managers find Facebook’s voting structure, its corporate policies, or its behavior distasteful enough, they might divest from the stock.

What message is Facebook sending with its board appointments?

Ahead of the meeting, Facebook and the SEIU announced that the company had adopted the so-called Rooney Rule for future board appointments, requiring it to interview at least one diverse candidate for each open spot. Alas, what one hand gives, the other takes away. Facebook also announced that it would be appointing a new board member, Jeffrey Zients, immediately after the annual meeting. The timing means that he will not have to be elected by shareholder vote until next year.

It’s a strange move, given that the vote–like all others at Facebook – will be just a formality.

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