The Institutional Shareholder Services warns about serious ethical issues about Facebook’s policy related to the future stock structure that will allow Mark Zuckerberg to control over 57% of Class B shares. In May, when the largest social network is set to go public, two types of shares will be available for purchase. Class A stocks, which could be purchased from the open market and that will worth one vote. On the other hand, high profile investors will be able to buy Class B stocks, worth ten votes.
Facebook’s CEO and co-founder will get voting control over at least 57.1% of Class B stocks following agreements with other important shareholders and he will also have 28.4% stake in the company. This is far too much, argued the organization that providing corporate governance services, the Institutional Shareholder Services. This stock structure with two distinct classes is considered “an autocratic model of governance.” This translates into the power to decide acquisitions, mergers and taking other crucial decisions being put into one man’s hand, Mark Zuckerberg.
Facebook had no other option but acknowledging the situation and the risk for investors. “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. (…) 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,” writes the document sent to the Securities and Exchange Commission.
However, Facebook was reluctant to give a direct response to the Institutional Shareholder Services’ concerns.