You might like or hate Facebook and it seems unlikely that Facebook could be any more ubiquitous but there you have it. The IPO is imminent and huge. A particularly interesting detail is how Zuckerberg has positioned himself to maintain the majority control over Facebook.
Could Zuckerberg be on to something here?
Public companies usually have the CEO, the executive team and the board of directors looking out for the shareholders. While customers are providing the revenue, it is the shareholders who tend to get preferred treatment. Generally, the CEO is appointed by the board so he or she may have to obtain approval for some decisions. Overall, CEO’s are the major decision makers and consequently hold a lot of power.
But what is different here is how Mark Zuckerberg holds the lion’s share and thus, a lot more power than is usual in public companies. According to an article by Matthew Yglesias on Slate, Zuckerberg has a work-around so that he will end up with 57% of the voting rights due to ownership of Class A and of Class B stock that becomes Class A when sold. Yglesias explains that when Zuckerberg’s partners cash out, he adds this to the stock he already owns. This is how he ends up with 57% and majority control.
Maybe Zuckerberg isn’t that unusual?
Other companies like Ford Motor Company and Google do something similar. Split shares are used so that founders and/or family members can maintain ownership and the power to steer the company in their preferred direction with minimal interference. In fact, Google just announced its stock split in April of 2012 (at the time of this post,
The other key factor is that Facebook will be considered a “controlled company” with exemptions. This structure enables Zuckerberg to have the leeway to do things like have Facebook acquire Instagram without a lot of checks and balances.
A need to be nimble
There are lots of things that can be said about founders of startups. Zuckerberg fits in with his high level of confidence and a vision of how Facebook can change the world. But Google’s recent announcement of creating split shares adds an interesting angle to the way Facebook will be owned. In a letter published by the Business Insider, Larry Page and Sergey Brin wrote,
.”..after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.”
It seems that Zuckerberg might be thinking along the same lines. If he has control over how decisions are made, this keeps Facebook able to respond to trends and changes.
Is Zuckerberg on the vanguard of how founders transition into CEO’s of a publicly traded company? Why or why not?
How could the marketplace be so volatile that so much agility is required to stay competitive?
Is this practice is not so unusual, why is there so much attention being paid to Zuckerberg’s majority ownership?
*Photo credit: Steve Miller