Facebook's About-Face

Facebook's (Nasdaq: FB  ) short history as a public company has included ample public relations problems. Maybe that's why the company has decided to make at least one thing right: It's appointed its own chief operating officer, Sheryl Sandberg, a woman, to serve on its board of directors.

Granted, this is only a small step for many reasons, but sometimes you've got to give credit for any step in the right direction.

A great first step
The awareness that American companies could use more diverse boards of directors has been gaining attention recently. For many years, boards of directors tended to be sadly homogenous; corporate governance expert and GMI Ratings founder Nell Minow describes this tendency as "male, pale, and stale."

Groups that contain too many similar people tend to fall into groupthink, and this doesn't bode well for the corporate need for robust discussions, innovative insights, or boards that can push back when management needs some restraint.

Although there has been some progress -- many more boards have at least one woman than was customary years ago -- there are still few companies with more than a single female director (less than 10% have more than three).

Given Sandberg's COO role, it seemed like a pretty glaring oversight when the lack of women on Facebook's board came to light. After all, she's a competent executive who truly understands the business, her resume includes a stint at Facebook rival Google, and the "humble" beginnings of her career included time as an economist for the World Bank. She should have been a shoo-in from the very beginning.

Still, Sandberg is anything but an independent director. She's absolutely an insider. Her appointment is a correction of what seemed like an oversight and maybe even a slight, but it's just one step toward building a robust board that incorporates many points of view. Moreover, it does nothing to build outside pressure for anything close to shareholder rights, since Mark Zuckerberg maintains a tight grip on control even post-IPO.

Social media's antisocial secret
Regardless, publicly traded social media companies could use some lessons in playing a little nicer with others. Their corporate governance policies have tended to have some old-school, shareholder unfriendly elements like classified boards and multiple classes of stock that give management tight control through their oversized voting power, leaving shareholders with little voice or sway.

In March, I dubbed the social media stocks "antisocial" due to their overall lack of female directors. Zynga (Nasdaq: ZNGA  ) and Angie's List were noteworthy for their lack of even one female director.

LinkedIn (NYSE: LNKD  ) , Yelp (NYSE: YELP  ) , and Groupon (Nasdaq: GRPN  ) narrowly escaped the "zero female directors" stigma by including one woman on each of their boards.

Boys' club 2.0?
For Web 2.0 companies that are supposedly so forward thinking, this sounds too much like old-school, boys' club nonsense. It's also counterproductive, given how many women are actually power-users of social media services. An ample amount of female insight would be an excellent addition to these boardrooms.

I'll give Facebook credit for adding a female when an obviously competent candidate was right there in the management suite. Hopefully it can forge a path ahead, though, in including more females on its board.

Seeing how most of Facebook's 901 million users actually are women, I have a funny feeling both users and shareholders would find a lot to "like" about some forward-thinking composition in social media's boardrooms.

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Check back at Fool.com every Wednesday and Friday for Alyce Lomax's column on environmental, social, and governance issues.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of LinkedIn, Google, and Facebook. Motley Fool newsletter services have recommended buying shares of Google and LinkedIn. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (8) | Recommend This Article (7)

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  • Report this Comment On June 27, 2012, at 8:11 PM, coakleywj wrote:

    Good for Ms. Sandberg as she earned it. I find mr. Minow's comment offensive and ignorant. I wonder how well that would go over if he was referencing a different classification of people. When you write an article such as this it really is supportive if you provide compelling reasons to have a diverse board. Such as companies with a diverse board outperform the market by 10%. Use data to support your argument otherwise it seems as if you are only stating an opinion.

  • Report this Comment On June 27, 2012, at 10:12 PM, TMFBreakerRick wrote:

    Coakleywj, FYI, Nell Minow is a she and not a he.

  • Report this Comment On June 28, 2012, at 12:08 PM, DCUDFlyer wrote:

    Congrats to Ms. Sandberg on the appointment. However, would it have been a more prudent decision to appoint a qualified INDIVIDUAL outside the realm of Zucker-land?

    I'm with you that women are under represented in executive/board positions...but I don't think she, or anyone for that matter, is a great choice based on their gender.

  • Report this Comment On June 28, 2012, at 1:13 PM, cattywampus wrote:

    Women have always been at the root of social development. They were inherently more social than men in the raising of children, development of agriculture, medicine, language and of course interpersonal and group exchange. They have been the pillar of our social reality. Facebook better watch out if they decide to break off as a group and start their own gender based social platform. Nell Minow is a woman worth listening to and considering. I always catch her on the Motley Fool Money Radio Show. It was interesting to see in a recent TED talk "babies and religion" that women are chosing to have 2 children on average worldwide and the world population should peak out at 10 billion. We men like to pretend we run the show. Remember the good old days that wern't so good.

  • Report this Comment On June 28, 2012, at 1:58 PM, Darwood11 wrote:

    Good article, but I think the issue goes a lot deeper than sex. I agree with DCUDFlyer that a qualified individual is most important.

    I have concluded that too many of these companies are far too ingrown to ever make it to the ranks of the well managed and socially acceptable. In other words, to be truly progressive in most aspects. I think that's why AAPL has missed the jobs boat in America. I cite AAPL because here is a company that did seem to have it all, and is squandering it. And they are doing so without the awareness of what they are missing; that's a consequence of an insular management or a group of like thinkers.

    I know it's considered heresy, but I'd buy companies such as MMM over the likes of most of those mentioned in this article. I'm particularly skeptical of some of the "tech darlings" who seem to thrive in a world entirely their own and are symbolic of the failure of the meritocracy in the U.S.

    I think the ultimate slap in the face was Bill Gates who took the ill gotten gains and decided to play Rockefeller. I say "ill gotten" because the company was found guilty of monopolistic practices, wasn't it? That was oh, so inconvenient, but the company had built a cash throwing behemoth in the process. A fine? Big deal! A $billion is nothing to these companies. In fact, some of them burn through that much in lousy product offerings and marketing each year.

    The dinosaurs did thrive for about 135 million years, because they successfully ate everything around. Only after the great dinosaur extinction did the small, warm blooded species thrive.

    I sometimes wonder what event will occur to alter the current dominant business species and allow other, smaller and nimbler companies to thrive?

    Most of the smaller companies I know are much better than the big ones in many of the so called "social" metrics. Sorry, I can't cite statistics, just personal experience. I also admit that some of the worst companies I've had experience with were small and had owners who were bullies, practiced deceit, etc. However, it was always possible to confront those out of control owners. Dealing with a multi-national with layers of bureaucracy and insulation is like dealing with the US government.

    Disclaimer: I own MMM.

  • Report this Comment On June 28, 2012, at 4:26 PM, Brent2223 wrote:

    Boards need to be thought of as a team, and not a collection of individuals.

    Babe Ruth was a great baseball player, but I don't think anyone would think that a team with 9 Babe Ruth's would be a good idea.

    In sports, and business, it's always much more complicated than 'who looks best on paper'. Choosing someone with the intent on adding diversity to a homogenous group is the right call in some situations.

    I agree that the reason for a diverse board is based on groupthink. I don't think you can prove the absence of groupthink leads to better results, but there are alot of examples of how groupthink leads to poor decision making. Thus, groupthink is a risk, and diversifying a board helps mitigate this.

  • Report this Comment On June 28, 2012, at 4:52 PM, Darwood11 wrote:

    Frankly, it's about willing to question everything. That is something that successful companies, companies which thrive on their winning formula, aren't willing to do.

    It's much, much deeper than "creative destruction." When I see people using that metaphor, I think "and what aspect of "creative destruction" do they practice in their personal lives?"

    Today's example of using a winning formula, and failing, is RIM.

  • Report this Comment On June 29, 2012, at 12:11 PM, TMFLomax wrote:

    These are GREAT thoughts, everybody. Thanks for chiming in! These are important conversations to have. (I am not condoning adding unqualified individuals to boards, of course -- you don't just grab somebody off the street. But I do think corporate America has been failing in staving off groupthink and that different types of people on boards, with different viewpoints and the ability to push back or bring in new perspectives, is HUGE.)

    Again, thanks for the great discussion!

    Alyce

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