In the fight against shareholder activism, Facebook won. At least for now. Activists pushed the company to split the chairman and CEO roles for Mark Zuckerberg, who holds both titles. The push is in response to the barrage of criticism over Zuckerberg’s handling of security and privacy issues in the last year.
In May, 68 percent of outside shareholders voted in favor of the split. But Facebook, like many other tech companies in particular, has a dual-class voting structure that gives insiders such as Zuckerberg more control over the company than outside investors.
Individual and institutional investors have Class A shares, where one share equals one vote. Zuckerberg has 75 percent of the Class B shares, where one share equals 10 votes, giving him control of 58 percent of Facebook’s vote, according to Forbes.
The argument in favor of the dual-class system is that it can protect companies from the short-term focus of the markets. Activists with short-term motivations can significantly harm a company, especially a growing firm, the reasoning goes. Other companies with dual-class shares include Google’s Alphabet, Under Armour, Lyft and Blue Apron Holdings.
At Facebook, Zuckerberg voted in favor of keeping his two titles and won. His defiance of shareholders may not last for long, as they are likely to come back and keep pushing. Proposals to seek an independent chair ranked first in the first half of 2019, with 66 filings, according to an early review by Institutional Shareholder Services (ISS). They were followed by proposals for disclosure of political contributions at 62. Withdrawal rates for governance proposals were low compared to historical levels, according to ISS, indicating companies are willing to put up a fight like Facebook did.