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Facebook Is Facing Rising Investor Unrest

By Evan Niu, CFA - Jun 6, 2018 at 2:12PM

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Resistance is futile.

Facebook ( FB 2.40% ) hosted its annual shareholder meeting last week, which merely served as a reminder that CEO Mark Zuckerberg rules the company with absolute authority. With roughly 60% voting power, His Zuckness can singlehandedly vote any director or official proposal in or out. The company was able to announce the voting results of all proposals, which included shooting down a shareholder proposal that would recapitalize Facebook's class structure into a single class, eliminating supervoting Class B shares.

As I wrote last week, the final tally will matter. The social networking giant has now filed that tally with the SEC, and the results show rising investor unrest as Facebook grapples with a new data scandal seemingly every week.

Mark Zuckerberg speaking on stage

Mark Zuckerberg. Image source: Facebook.

Breaking down the tally

For starters, here is the official tally for that specific proposal:

Proposal to Change Stockholder Voting



1.29 billion


4.74 billion


8.7 million

Broker non-votes

436.6 million

Data source: Form 8-K.

Remember that Zuckerberg beneficially owns 8.7 million Class A shares and 392.7 million Class B shares, according to the most recent proxy. In addition to that, he has voting proxy of another 48.9 million Class B shares (those owned by co-founder Dustin Moskovitz). With voting control over 441.6 million Class B shares, which get 10 votes per share, that accounts for 4.4 billion votes. The other 8.7 million votes from his Class A shares, which get one vote per share, are effectively a rounding error. All told, it's safe to say that Zuckerberg cast 93% of the "against" votes for this proposal.

There's another way we can look at the results. There were just over 6 billion total votes cast, when excluding abstentions and broker non-votes. When you back out Zuck's 4.4 billion votes, that leaves about 1.6 billion votes cast by everyone other than him. Of those, nearly 1.3 billion votes -- or about 80% -- were in favor of stripping Zuckerberg of his supervoting shares. If we exclude other executives and directors (including both their Class A and Class B holdings and assuming they voted against the proposal), the proportion in favor rises to 83%.

It's worth noting that this same shareholder proposal was put forth and voted on last year, and the results were largely the same. The share counts change over time as Zuck converts Class B shares to Class A shares in order to fund his philanthropic efforts, but if we do the same exercise, about 79% of votes cast by shareholders other than Zuckerberg wanted to eliminate the supervoting Class B shares.

It was the best of times, it was the worst of times

Over the past two decades, it's become increasingly common for tech companies to structure voting rights in this way, concentrating power at the highest echelons of the company in a blow to corporate governance. Another recent example would be Domo, which recently filed its S-1 and whose founder, Josh James, holds 91% of all voting power.

When times are good, tech stocks deliver incredible returns to investors, who become complacent as they enjoy said returns. When times are bad, investors tend to call for leadership changes, only to wish they hadn't implicitly accepted not having any effective voting power.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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