Facebook versus the Shareholder Spring

By Lucy P. Marcus
May 17, 2012

The corporate world is emerging from several weeks of boardroom turbulence dubbed the “Shareholder Spring.” In annual meeting after annual meeting around the world, boards have been taken to task by investors and other stakeholders on a wide range of issues: remuneration, board composition, competence, diversity, voting control, dual stock, and more. In the meantime, we have also witnessed the soap opera of Yahoo’s boardroom, the rebuke to newly public Groupon’s board for its lack of oversight of accounting practices, and the public condemnation of News International’s chair – and, by extension, its board – questioning his competence to lead the organization. No sector has been immune; no director has been untouchable.

Now Facebook is about to enter the public markets. Its defiant position regarding its old-style governance is in stark contrast with the temper of the Shareholder Spring. Facebook swims against the tide of a global movement toward transparency, engagement, and checks and balances. It feels as if we’ve all stepped into a time machine and none of the past couple of years of governance lessons – including the failures of boards in the banking-sector crisis – ever happened.

Several troubling issues call into question how this company can consider itself groundbreaking, innovative or new: the concentration of power in the hands of one man, the stranglehold on voting rights, the lack of diversity in the boardroom (which in a way is inconsequential, as the Facebook board does not have much bite anyway), and above all else the flagrant disregard of the lessons of the past several years about engaged, active and independent boards contributing to strong companies. Were Facebook striving to be an innovative company built to last, it would encourage healthy dialogue and diversity in the boardroom, and equal shareholder voting rights. It would not need to lock in power, but rather earn authority through excellent performance and results. The leadership would trust that a democratic boardroom would foster greater strength and stability than dictatorship, which brings a false sense of security. That’s a lesson we can take from the Arab Spring, where dictators thought that they held real control.

Today there is euphoria, anticipation and excitement among investors. A lot of people will make money in the short term, but short-term investing is not what builds strong businesses and strong economies. The world needs durable companies that are innovative in the products and services they sell, but also distinguish themselves through responsive and responsible conduct in their corporate governance structures and business practices.

Over the years Facebook will need to grapple with many issues that affect the development of the company and the lives of its users, from growth to innovating ahead of the curve, and from privacy to social responsibility. My hope is that Mark Zuckerberg begins to see the value of ceding some of the control he holds by rule and is able to trust that he will be able to earn that control through deed. If that doesn’t happen, all eyes will be on the investors to see if at least they have learned the lessons of bad governance and the value of good.

PHOTO: The Facebook profile of founder Mark Zuckerberg on a mobile phone is seen in this photo illustration, May 16, 2012. REUTERS/Valentin Flauraud

5 comments

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Facebook is Zuckerberg’s personal play toy, his vision for a socially connected society.

It does “need to lock in power” because all shareholders want is profit and growth. Zuckerberg’s primary motive is not profit. His game is about building a really cool mousetrap – the pride of The Builder.

He would have happily went along for years as a private company where he wouldn’t have to dance like an organ grinder monkey for shareholders drooling for profit.

The arbitrary rules put an end to that.

He doesn’t have to “earn… through deed”.
He built the house. It’s his.

Posted by bryanX | Report as abusive

I am late posting on this absurd article.
Some issues which Ms. Marcus finds “troubling” such as “concentration of power, innovation,dictatorship” is tantamount in the majority of companies. What is she writing about?
Imagine Steve Jobs, at one time, without complete control? Warren Buffet? Steve Wynn? Sheldon Adelman?
I can name hundreds. A successful leader is just that!
Remember, the buck stops at the main man’s desk.
Yes,Mark Zuckerberg has much to prove.
Time will tell.

Posted by mbrillo1 | Report as abusive

This article is well timed for those who stand astride the old and new frontiers of the Corporate world as the humanity declines in ethical excellence with the passage of time, we are now in.
face book for Mark Zuckerberg is something more than a FACE BOOK : he has seen it grow from insignificance o significance! He has no customers, has family members; anyone who visits his face book
will never be quite the same again. I feel face book is the culmination of his essence and that he will learn more: now with obsession! His share holders must try to understand that Zuckerberg has connected dreams not people of this world. They must also understand that the corporate-world we breathe in has produced only two types of people: those who expect the business schools- systems to produce compassionate and caring leadership, and those who practice the two knowing well that one day it will produce the system !
face book knows business has four great advantages in the field of social net working; it offers leadership, cater organization, marshal human resources and provide human support ( which will their next Marketing step: FIRST AID to the needy anywhere in the world)… Our world needs men in business with such outlook: keen to add to gross national happiness !
MJK Shervani. Riyadh.

Posted by Shervani | Report as abusive

It’s good to be the King. Zuckerberg was forced into taking Facebook public. I’m hoping he continues to completely disregard the ‘board’ and continues to do what he pleases. If this balance of power were to change the effects on Facebook would likely be negative.

Shareholders want profit and are motivated by greed.
Zuckerberg’s motivation is to create something ‘cool’ and bring the world together. Which do YOU prefer?

Posted by LenicGB | Report as abusive

Most of the posters need to get over their emotions and focus on the concepts of corporate governance. This article is spot on. Mr. Zuckerberg should not have taken the company public if he is not willing to abide by basic standards of corporate governance. To be listed on an exchange requires a company, no matter how “cool” or “visionary”, to abide by rules and norms that ultimately benefit society.

Clearly, the fact that they “needed” to go public is as great an indicator of failure that I can imagine. IF they are really going to make money, there was utterly no need to go public. Private placement for future investment would have been trivial to line up. SELL…

Posted by NicholasA | Report as abusive