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.
See Taking
the Face Off Facebook: Strategic and Ethical Issues, available at
Amazon
[1]
Donie O’Sullivan and Paula Newton, “Zuckerberg
and Sandberg Ignore Canadian Subpoena, Face Possible Contempt Vote,”
CNN.com, May 28, 2019.
[2]
Seth Fiegerman, “Facebook
Shareholders Pressed for Checks on Mark Zuckerberg’s Power. They failed,”
Cnn.com, May 30, 2019.
[3]
Ibid.
[4]
Ibid.
[5]
Ibid.
[6]
Ibid.
