Owing to his holding of B shares, Zuckerberg maintains dominion over 57% of the company’s voting power. As soon as the company is officially public, this structure will give Zuckerberg the right to single-handedly come to solutions on issues that require a shareholder vote, including merger decisions and board elections. Zuckerberg, at 27 years young, even holds the right to select his own successor.
“This is a governance profile with a defense against everything except vanity,” I.S.S. noted dryly. Facebook’s governance structure has already elicited concern from leading independent corporate governance experts including Charles Elson, director of John L. Weinberg Center for Corporate Governance at the University of Delaware “I find it very troubling,” Elson said last week. “The whole tone to me was contrary to where governance has been moving, and the lessons that we have learned.”
In creating a dual-class shareholder structure, Facebook is following in the path of other newly public tech companies, including LinkedIn, Groupon, and Zynga. This structure, I.S.S. writes, stands “in striking contrast to the long-standing desires of the institutional shareholders whose cash Facebook hopes to take.” Although individual shareholders will no doubt flock to Facebook’s IPO, the biggest shareholders of the company will most likely be large institutional investors like pension funds and mutual funds.
But despite the “autocratic” nature of Zuckerberg’s control over Facebook, I.S.S. predicts that investor appetite to own a piece of the largest Internet IPO in history will result in a successful offering. “Even a strong distaste among institutional investors for the company’s archaic governance practices is unlikely to diminish the economic success of the IPO,” as it was written in the ISS report. Facebook has plans to raise US $5 billion in an Initial Public Offering that could set the value of the company as high as $100 billion.