Thursday, May 30, 2019

Facebook’s Mark Zuckerberg: Power beyond Corporate Governance

Facebook’s Mark Zuckerberg and Sheryl Sandberg did not attend a committee hearing at Canada’s Parliament on May 28, 2019 in spite of having received summons from Bob Zimmer MP, the committee’s chair. Instead, Facebook sent its director of public policy and its head of public policy for Facebook Canada. “Shame on Mark Zuckerberg and shame on Sheryl Sandberg for not showing up today,” Zimmer said toward the end of the hearing.[1] For sending two representatives rather than themselves, Zuckerberg and Sandberg faced the possibility of being held in contempt. They had testified before the U.S. Congress, so by sending two representatives the two leaders of Facebook may have acted rather dismissively concerning Canada’s federal legislature. At the time, Zuckerberg had virtually unchecked power at Facebook, including over the other stockholders. From his perch, the power may have been going to his head; even after two years of user-privacy scandals, Facebook’s CEO and Chairman of the Board may have determined that summons from legislatures where the company was operating were beneath him. Such a mentality is dangerous for a person with autocratic control of such a large company.
Corporate governance can pale up against a formidable CEO who also chairs the board whose raison d’etre is in part to hold the CEO accountable. Even that such a structural conflict of interest could be allowed persist at a company suggests that its corporate governance system is weak, with too much power going to the management at the expense of the non-management stockholders. In the case of Facebook, Zuckerberg founded it, and on this basis he doubtlessly believed he was justified in being the sole holder of class B stock, each share of which having 10 votes such that he was the majority stockholder. In a show of just how pathetic minority stockholder rights can be, Zuckerberg voted down stockholder proposals “to put checks on Zuckerberg’s ironclad grip on the company he founded.”[2] This took place just two days after Zuckerberg had failed to show up at the Canadian committee hearing.
Zuckerberg was doubtless awash in power, for he had refused a legislature’s summons and could easily control his company’s corporate governance. Lawmakers in Congress and even Facebook insiders were raising concerns not only about whether Zuckerberg had too much power, but also the company itself, given the scandals that had been going on for more than two years. Shareholders argued that Zuckerberg’s holding of the board chairmanship “contributed to Facebook missing, or mishandling, a number of severe controversies.”[3] Stockholders also believed that eliminating the Class B shares (i.e., 10 votes per share) would enable stockholders to limit Zuckerberg’s power and “hold management accountable.”[4] As scandals—even one at the time hinging on Zuckerberg’s refusal to take off a distorted video of Nancy Palosi, the Speaker of the U.S. House—came up, stockholders had no recourse to management, which could safely ignore the complaints even though stockholder value was being affected.
I submit that the business judgment rule accords corporate managements with too much power in corporate governance over non-management stockholders. At the broad policy-level in which boards of large corporations operate, business expertise, while relevant, should not push out the role of non-management stockholders being able to act as a check on a CEO’s power. Fundamentally, even beyond the value of business expertise, ownership of the corporate wealth supersedes its management. As stock options as “firm-aligned” compensation for executives becomes more popular, the role of non-management stockholders becomes more important if accountability, or a check, is to be part of the system of governance. In other words, boards of directors should not be controlled by their respective CEO’s. In the case of Facebook, its breaches of private information and its role in influencing political elections as well as politics suggest that the corporation’s system of governance should include accountability.
In such a case in which a company leaves a huge societal footprint, with a potentially dire downside, and yet the corporate governance is monopolized by one person, it is only natural to look to external accountability in the form of anti-trust enforcement. Sure enough, U.S. House Rep. David Cicilline the chairman of the Antitrust Subcommittee, had called for an antitrust investigation into Facebook, “with a focus on its acquisitions of Instagram and WhatsApp,” both of which had more than a billion users in May, 2019. Even Facebook’s cofounder, Chris Hughes, “called for Facebook to be broken up and raised concerns about Zuckerberg’s ‘unchecked power.’”[5] Alex Stamos, Facebook’s former chief security officer, said Zuckerberg should “give up” some of his power and hire a new CEO.[6] Awash with power, Zuckerberg could ignore such advice. As for the prospect of being broken up, Zuckerberg could use more of the company’s wealth to make political campaign contributions and help lawmakers in other ways. When the lack of accountability in a company senses no threat from corporate governance and the reach of governments, then the exercise of such power can become virtually unstoppable.


[1] Donie O’Sullivan and Paula Newton, “Zuckerberg and Sandberg Ignore Canadian Subpoena, Face Possible Contempt Vote,” CNN.com, May 28, 2019.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.