Can Facebook’s Board Be Honest With Its Shareholders?

Jason Kint, Kathleeen Day / May 19, 2022

Jason Kint is the CEO of Digital Content Next, a trade association representing publishers; Kathleen Day is an author and a former Washington Post business reporter who is a now full-time lecturer at Johns Hopkins University's Carey Business School.

Mark Zuckerberg and his fellow board members at Facebook—now calling itself Meta Platforms, Inc.-- aren’t doing their job to protect shareholders.

They habitually fail to manage risk, despite having rechristened their audit committee as the “audit and risk oversight committee” under pressure from shareholders four years ago. A group of investors now plans to revisit the issue at the next annual shareholder meeting on May 25th, where they will ask Zuckerberg– the founder, chairman and CEO– and the rest of the board to conduct an independent review of the board’s track record in weighing dangers to the company.

In 2018, Zuckerberg and his allies used their “super” shares—which give them 10 times more voting power than rank-and-file investors—to kill a proposal to establish an independent risk committee. Yet, as nearly half of Facebook’s independent shareholders had voted in favor of the proposal, Zuckerberg and friends felt forced to do something, hence the rechristening.

The company describes the mandate of its audit-and-risk committee as one of helping “the board of directors in its general oversight of our accounting practices, system of internal controls, audit processes and financial reporting processes.” This description ignores the larger reputational and legal dangers that a real risk committee would address and shows the name change was, as many suspected, window dressing–hence the latest proposal. It reflects the mindset that causes Zuckerberg and his fellow directors to fall short again and again in addressing practices that erode the company’s value—not to mention the flow of accurate information in society—and democracy itself.

This shareholder season, Facebook investors are asking fellow shareholders to vote “yes” on a proposal that the board conduct an independent review of their performance on risk. Despite the power advantage Zuckerberg and a group of allies wield through their special stock status, perhaps the company’s directors will be shamed into action, as they were four years ago. This time, maybe, they will seriously probe the board’s track record on risk, and for all shareholders, not just for those who hold an elite class of company stock.

To date, however, there has been zero change in company behavior. Instead, Facebook spent months and millions of dollars to change its name to Meta. The market, as it should, increasingly mistrusts the ability of the company to manage risk on behalf of all shareholders: the collapse of its stock in February– by a quarter of a trillion dollars ­– was the biggest recorded drop ever of a single firm’s overall value in a single day. Even with some recovery since then, the fall signals the market is coming to fully realize the company’s business model of using customer information in ways they don’t expect or consent to is more than unethical. It’s bad business.

People want to be in control of their privacy. Revelations from whistleblowers and government investigators have continually shown that Meta officials say one thing about protecting against the misuse of customer information but do another. That discrepancy exposes the company to massive risks that cost shareholders billions of dollars in fines and lawyers’ fees, not to mention millions more in damaged reputation and good will.

Major shareholders continue to highlight ways founder Mark Zuckerberg and the other directors waste company assets. In perhaps the most notable example, Facebook paid $5 billion to federal regulators, rather than the $100 million or so its attorneys argued was the “maximum possible civil penalty,” to settle charges on the leaking and illegal selling of Facebook’s customer information to Cambridge Analytica. Why pay such a hefty premium with shareholders’ money? Apparently to shield Zuckerberg from being personally named in the charges and settlement, according to investor lawsuits now playing out in Delaware. Loss of customer trust is a key risk for Facebook, one that lawsuits and whistleblowers allege Zuckerberg and fellow directors have used market dominance and influence to ignore in favor of meeting quarterly earnings targets. Last week's boost from earnings—which still leaves the company’s stock well below its historic highs—won’t last if the company doesn't fix its core issue: risk.

Consumers, legislators, and stockholders are waiting for enforcers and new legislation to hold the company formerly known as Facebook accountable. As a publicly traded company these actors can, and should, take action. Meta’s status as a publicly traded company— bequeathed by the government on behalf of the public—carries many benefits: limited liability, easy transfer of ownership, broader access to shareholder money. But it also comes with duties. As articulated by Alexander Hamilton 230 years ago—and in language that’s as fresh today as it was then, when he argued before President George Washington in defense of public companies—the first of those responsibilities is to do no harm to the public, and to follow the law.

With the stock price under pressure, more and more shareholders are joining the growing list of observers questioning Facebook’s motives and ability to act responsibly. That alone should motivate the board’s directors to review their own track record on risk before considering Facebook’s planned ventures into virtual worlds. After all, in the real world, responsible corporate boards should assess actual risks and adjust practices accordingly to serve shareholders, not just the company’s founder, who remains firmly in control of the board. Right?

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Update, June 13, 2022: The proposal we favored, calling for an assessment of the board’s handling of risk, lost by an estimated 67 percent to 34 percent of outside shareholder votes cast. That's not the outcome we wanted but a strong showing nonetheless for a proposal being offered for the first time. Coupled with winning votes (by outside shareholder votes) on other issues intended to hold the board accountable—including 91.7 percent of outside shareholders voting in favor of ending dual-class shares—the proposals keep up the pressure on Facebook’s management to do better. We hope activist shareholders will resubmit for next year the proposal for an independent review of the Audit and Risk Oversight Committee. We'll be watching to see if these votes sway the board in the meantime to do some right things, starting with holding its members more accountable to all shareholders.

*We estimated the outside votes cast against proposals by subtracting Zuckerberg's more than 80 percent stock ownership share from the total of "nay" votes. That's conservative as it does not include the additional shares he controls that bring his total control of Meta stock to over 90 percent.


Jason Kint
Jason Kint is CEO of Digital Content Next, the only trade association to exclusively serve the unique and diverse needs of high-quality digital content companies that manage trusted, direct relationships with consumers and marketers. Jason guides DCN’s diverse and powerful group of members — establi...
Kathleeen Day
Kathleen Day is an author and a former Washington Post business reporter who is a now full-time lecturer at Johns Hopkins University's Carey Business School, specializing in financial crises and economic history.