Notes of Note from John F. Ince

Under the governance provisions, Zuckerberg would remain in complete control of the company for the foreseeable future, so much so that the 27-year-old Harvard University drop-out would even have the right to appoint his own successor before he dies.”With a person that owns as much of the stock and the way he has set up the governance … it will be very hard to influence him except if hes got some kind of a conscience,” Hester-Amey said.Facebooks corporate governance measures go against a decade-long trend of a move toward more shareholder-friendly corporate governance in the United States, prompted by institutional shareholders such as CalSTRS.S&P 500 companies have been taking down classified boards, poison pills and other defenses over the years under pressure from institutional investors to have more shareholder-friendly governance rules.For example, only about 24 percent of S&P 500 companies now have classified boards — where only some of the directors come up for election every year — down from 61 percent in 2002, according to FactSet SharkRepellent.Facebook has two different classes of common stock, with Class B shares entitled to 10 votes per share against one vote per share for Class A. Class A stock is being sold to the public.Zuckerberg has also struck voting agreements with investors including DST Global Ltd and Accel Partners. Overall he will have majority control after the IPO, giving him the power to determine the outcome of matters submitted to shareholders for approval, including the election of directors and any merger.Given Zuckerbergs holdings, Facebook is also deemed a “controlled company,” which gives the company the right to not have an independent nominating committee of the board to choose directors.Moreover, Facebooks governance rules say that when Class B shareholders have less than the majority of the combined voting power, the board will become staggered, only the board will be able to fill director vacancies and it will take a supermajority to change the companys by-laws.Corporate governance expert Charles Elson said provisions such as the dual-class stock structure, different voting powers and Zuckerbergs ability to designate his successor were all reasons for concern.”I find it very troubling,” said Elson, who is the director of John L. Weinberg Center for Corporate Governance at the University of Delaware. “The whole tone to me was contrary to where governance has been moving, and the lessons that we have learned.”

via Facebook governance a concern for California pension fund | Reuters.


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