It's official: Facebook (NASDAQ:FB) has decided to drop its controversial plan to split its stock. A controversial move from last year had been designed to allow Mark Zuckerberg to retain control over the company, even as he plans to give away 99% of his Facebook holdings throughout his lifetime for philanthropic purposes through the Chan Zuckerberg Initiative.

The original plan was to change the company's capital structure by establishing a new non-voting "C" share class, with all Class A and Class B shareholders -- public investors and company insiders, respectively -- receiving two Class C shares for every one Class A share held. As Zuckerberg sold supervoting Class B shares over time to fund the Chan Zuckerberg Initiative, which convert to Class A shares upon a transfer of ownership, he would still be able to retain majority voting power.

Mark Zuckerberg speaking on stage

Image source: Facebook.

The pushback from investors was swift and immediate. A shareholder filed a class action lawsuit just days after the proposal was announced in April 2016. Facebook had been exploring the plan since August 2015, establishing a special committee of independent directors consisting of Susan Desmond-Hellmann, Marc Andreessen, and Erskine Bowles to evaluate the idea. The proposal passed at Facebook's 2016 annual meeting, which was unsurprising since Zuckerberg, who controls roughly 60% of the company's voting power, can singlehandedly pass any proposal he wishes. Still, the class action lawsuit has been an overhang, and Facebook couldn't proceed with the plan with litigation pending.

A major corporate-governance win for shareholders

Facebook has now settled the class action lawsuit, just days before the case was set to go to trial. Zuckerberg would have had to testify, and it would have been challenging for him to argue that the move was the right for shareholders, to whom he owes a fiduciary duty. The company filed an 8-K with the SEC to make it official:

On September 21, 2017, the Board of Directors (the "Board") of Facebook, Inc. (the "Company"), following the unanimous recommendation of the Board's Special Committee of independent directors, determined not to proceed with the filing of the amended and restated certificate of incorporation, as described in the Company's definitive proxy statement dated June 2, 2016 (the "Proxy Statement"), and agreed to abandon the reclassification of the Company's common stock as more fully described in Proposal Seven of the Proxy Statement and approved at the Company's Annual Meeting of Stockholders on June 20, 2016. As a result, the Company will not proceed with the dividend of Class C capital stock or enter into a founder's agreement with Mark Zuckerberg as described in such proposal.

Zuckerberg also wrote a blog post to announce the decision, although he doesn't attribute the decision to the class action lawsuit. The Facebook CEO instead contradictorily notes that Facebook stock has appreciated so much over the "past year and a half" that he can still retain control for 20 years while selling shares, but he then acknowledges that he will accelerate the rate at which he's selling. Zuckerberg plans on selling 35 million to 75 million shares over the next 18 months, valued at about $6 billion to $12.75 billion at current prices. He had initially pledged in 2015 to sell "no more than $1 billion of Facebook stock each year for the next three years."

Let's be honest: Ditching the plan has nothing to do with how Facebook stock has performed recently. Facebook was about to come up against a contentious lawsuit that highlighted its own corporate-governance weaknesses, and the testimony would have been very publicly damaging. There was already embarrassing information coming out of the suit's initial discovery process, the most damning of which revealed that Andreessen was secretly coaching Zuckerberg on how to get the proposal passed, even though Andreessen is supposed to represent shareholders as an independent member of the board and part of the special committee.

At one point, Andreessen wrote a message to Zuckerberg that perfectly distills why investors justifiably opposed the split: "Erskine [Bowles] is just massively uncomfortable with you getting to low economic ownership and then going off on leave with no involvement by the board and retaining control."

Evan Niu, CFA owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.