So, Who Owns Facebook?
He’s a fellow Exonian, and we should give him the benefit of the doubt -- for now. But Mark Zuckerberg ‘01, the billionaire founder and majority shareholder of Facebook, last week settled a lawsuit in which Facebook shareholders accused him of reducing the value of their investment while permanently cementing himself as the head of the company. Avoiding his own public testimony at trial by settling the case, Zuckerberg backed down for the moment. But the issues raised by his (and Facebook’s) actions have long-term implications specifically for wealthy company founders who are trying to promote social justice as well as more generally for our democracy.
Zuckerberg’s controversial founding of Facebook from his dormitory as a Harvard undergrad is legendary, and it’s even become the stuff of a Hollywood movie. Equally compelling, however, is Zuckerberg’s interest in political causes and matters of social justice. In 2010, Zuckerberg and his wife Priscilla Chan donated $100 million to the public schools of Newark, New Jersey, and in 2013 they donated 18 million Facebook shares (worth $990 million) to the Silicon Valley Community Foundation -- the “largest charitable gift on public record for 2013.” After reporting in 2012 that they would give away the majority of their wealth to “advancing human potential and promoting equality,” Zuckerberg and Chan announced that they specifically intended eventually to give 99 percent of their Facebook stock to their foundation, the Chan Zuckerberg Initiative.
The recent lawsuit by Facebook shareholders, though, revealed that a preoccupation of Zuckerberg’s is to keep control of Facebook, even as he gives away 99 percent of it, and also possibly to enter politics while still controlling Facebook. As a person who already has all that anyone could need materially, Zuckerberg seems more intent on maintaining and gaining power. And we would be rightly sceptical of electing a Senator Zuckerberg, or President Zuckerberg, who also controls an information company on the scale of Facebook.
The claims brought against Zuckerberg and others at Facebook are technical. Basically, shareholders say that he engineered a “reclassification” of Facebook’s shares to create more shares (which could be given to Facebook employees or used like money to buy other companies) but also to solidify Zuckerberg’s overall majority control without providing any benefit to the shareholders. Zuckerberg now owns 60 percent of the voting stock of Facebook, and this gives him the ultimate say on everything. Giving away his shares would mean that he could eventually lose control of the company. What shareholders claim Zuckerberg tried to do was to separate out the “ownership” powers of Facebook stock from the “voting,” or control powers of that stock, and then keep the voting for himself. In this way, Zuckerberg could continue to vote his controlling 60 percent power while still giving away stock. Shareholders claim that Zuckerberg’s plan would have lessened the value of their own stock while giving him eternal control over Facebook.
Many would say that giving permanent control of the company to Zuckerberg is reasonable; after all, he founded the company. But this raises larger questions about fairness to shareholders and the desirability of allowing company founders to stay in control of their companies long after they have sold or donated any stake they have in the company’s profits. And the implications of someone of Zuckerberg’s power over information -- advertising, knowledge of individuals’ personal information, and the ability to control political conversation at Facebook -- who also wants to run for national office are frightening.
Zuckerberg has a long way to go until his giving away his Facebook stock also means giving away his control of the company. As he said in a recent company post announcing the withdrawal of the reclassification plan, it was “complicated” and not a “perfect solution.” Going forward, though, we as a society should encourage those with extreme wealth to use that power for society’s benefit, while also making sure that such power is not abused to harm smaller company shareholders or, more importantly, our democracy.