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Activist Investors Are Pushing for a New Facebook Chairman

By Evan Niu, CFA - Updated Oct 18, 2018 at 3:32PM

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Unfortunately, they'll probably fail.

Activist investor Trillium Asset Management has been trying for years to bring about corporate governance improvements at Facebook (FB 1.83%), with little to show for it. Trillium proposed creating a risk oversight committee last year, for instance, that would be better equipped to assess the risks facing the company, especially those related to data privacy. While that proposal failed to pass, Facebook gave the board's audit committee slightly more responsibilities regarding risk oversight. Investors not named Mark Zuckerberg also overwhelmingly want to strip his Zuckness of his supervoting Class B shares.

Trillium is now pushing Facebook to name an independent chairman, and the request has garnered additional support from other institutional investors.

Mark Zuckerberg standing on stage

Mark Zuckerberg. Image source: Facebook.

Rallying other institutional investors

In its proposal released over the summer, which will be put forth at next year's annual shareholder meeting, Trillium wants Facebook to adopt a policy that requires the chairman to be an independent director. The argument is fairly standard, highlighting the fundamental benefits of splitting the CEO and chairman roles:

Having an independent chair helps the board carry out its primary duty -- to monitor the management of the company on behalf of its shareowners. A CEO who also serves as chair can exert excessive influence on the board and its agenda, weakening the board's oversight of management. Separating the chair and CEO positions reduces this conflict, and an independent chair provides the clearest separation of power between the CEO and the rest of the board.

Trillium believes that the board's insufficient oversight abilities that stem from Zuckerberg serving as CEO and chairman have "contributed to Facebook missing, or mishandling, a number of severe controversies."

Other institutional investors -- including New York City Comptroller Scott Stringer, Illinois State Treasurer Michael Frerichs, Rhode Island State Treasurer Seth Magaziner, and Pennsylvania Treasurer Joe Torsella -- are expressing support for Trillium's proposal, according to Business Insider.

Facebook prefers the status quo

The unfortunate reality for Facebook investors, myself included, is that Zuck isn't going anywhere unless he wants to. With roughly 60% voting power, Zuck can single-handedly shoot down any shareholder proposal that he disagrees with, as well as vote any director in or out. Activist investors will need to convince Zuckerberg to voluntarily step down as chairman, and it's pretty clear that conventional arguments underscoring the benefits of stronger corporate governance haven't worked thus far.

An identical proposal for an independent Chairman failed in 2017, and here's how Facebook argued against it in its opposing statement:

Forcing a division between our Chairman and our CEO could harm our performance and be detrimental to interests of our stockholders.

...

Our board of directors currently believes that the most effective leadership model is that Mr. Zuckerberg serves as both Chairman and CEO. Mr. Zuckerberg, as our founder, has guided us from inception and is invested in our success. We believe our board of directors is functioning effectively under its current structure, and that the current structure provides appropriate oversight protections. We do not believe that requiring the Chairman to be independent will provide appreciably better direction and performance, and instead could cause uncertainty, confusion, and inefficiency in board and management function and relations.

That was last year, but criticism of Facebook had already started to intensify following the 2016 election. Even as the number of scandals has swelled since, Zuckerberg has shown no signs that he's willing to step down from either role. For better or for worse, shareholders are stuck with Zuck.

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