FB Stock: A Major Shakeup Could Be on the Way for Facebook, Inc.

Facebook, Inc.: Does Mark Zuckerberg Need to Go?
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FB Stock in 2019

It’s been a tough few years for Facebook, Inc. (NASDAQ:FB). The company has battled lawmakers and public perception after numerous privacy debacles, fake news troubles, overreach accusations, and declining growth. FB stock has been beset by troubles for a long while now, sufficient to say. And some are blaming the man at the top, Mark Zuckerberg.

It’s easy to see why. Zuckerberg is no one’s idea of a charismatic entrepreneur. Whereas Steve Jobs and Elon Musk have inspired cult-like followings, Zuckerberg has only really ever been able to inspire derision.

From his days as a petulant Harvard student writing some rather unsavory things to his time now as a billionaire tech titan, Zuckerberg has trouble making friends. Hell, there’s a whole movie dedicated to how unlikable the man is. Of course, that movie is fiction, but regardless, the general perception of Zuckerberg is a bad one, regardless of accuracy.

And that presents a pretty strong case for his removal as chairperson of Facebook. So strong a case, in fact, that 68% of shareholders want to remove him from that position. That’s up from 51% in 2017. (Source: “Shareholders not named Mark Zuckerberg want him out as Facebook’s chairman,” Quartz, June 4, 2019.)

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The problem, however, is that, like many tech companies, 68% is not a majority—at least, not in the way they need.

While traditional math would have us consider 68% in majority territory, in this case, Zuckerberg has more than enough clout to outvote them. That’s because for “class B” shareholders, one share is 10 votes, while “class A” shareholders only get one vote per share.

Class B includes Zuckerberg and his inner circle and accounts for about 18% of the total shares, equating to about 70% of the vote, with Zuckerberg himself holding onto 60%.

With that voting system in place, it’s near impossible to remove him as chairman.

As a result, it will be business as usual for FB stock—which hasn’t been all that great in recent times.

Chart courtesy of StockCharts.com

Down 14% over the past year, this is a far cry from when FB stock was one of the best on the market in the tech sector.

Of course, it was always bound to slow down in growth (after all, it already counts over one billion users; there’s only so many people). Its various spin-offs and acquisitions have been successful, but overall, the company couldn’t keep its outrageous growth up forever.

Couple that with the various scandals Facebook has found itself mired in, and you have a recipe for loss.

Changing Zuckerberg could be a huge boon to the company. After all, he would remain as CEO and largest shareholder; he just wouldn’t be chairperson of the board anymore.

That would help satisfy the call of activist investors while also ostensibly stamping a new face of chance on Facebook, Inc., with nothing all that substantive really changing all the while.

It’s a low-risk, high-reward move that I wish Facebook would consider, but at this point, it doesn’t seem like it’ll be removing Zuckerberg anytime soon.

Tech Stocks Unbalanced Power

One of the big problems that the Facebook power struggle highlights is the uneven voting power among many major tech companies. This is a carry-over from the “genius entrepreneur” days, a notion that still pervades the industry often to the detriment of the companies themselves.

You know the myth: a Silicon Valley genius (or maybe a couple of them) toil away in their garage on some great, revolutionary idea. A few visionary investors give them the money and runway to make that idea a reality, they become a company, millions are made, they go public, billions are made, and they live happily ever after.

This pervasive myth is wrong for a lot of reasons, but it’s also damaging; it often justifies giving a lot of control over to the entrepreneurs who started a company.

Let’s use Facebook, Inc. as an example, although it is hardly the only company guilty of this practice.

There’s no denying that Zuckerberg is a talented developer with an innovator’s mind; that’s how we got Facebook in the first place. But there’s also no doubt that the man has rubbed people the wrong way for many years now in a number of situations.

It’s also undeniable that, at times, he has certainly cost FB stock value, whether it’s due to rash decisions or simply being unlikable on television. Whether that’s fair or unfair is immaterial; it’s reality.

Zuckerberg is not the best public face of a company; he simply sucks as a mascot. Steve Jobs, by contrast, was much more charismatic and had a much deeper following as a result.

The problem here, however, is that Zuckerberg, by virtue of having created Facebook, very much wants to be the face of the company. And that’s understandable. But in order to do so—even if he’s not the right man for the job—he had to ensure total control. Thus, he gave himself all the top positions while also giving himself enough voting power via class B shares that his job security was virtually guaranteed.

The propensity for tech companies to create these tiered voting share systems has given an overlarge amount of power to these ‘genius entrepreneur’ types, with too little redress for common shareholders.

Lyft Inc (NASDAQ:LYFT) and Uber Technologies Inc (NYSE:UBER) have also engaged in similar practices as newly minted public companies.

While these don’t always lead to disastrous results, it is a problem endemic to the tech community. Too often, too much trust is placed in the hands of brilliant founders who may not be the best businesspeople and, as a result, stocks suffer.

It likely won’t change anytime soon. There is simply way too much power behind that brilliant creator myth to have investors begin to wrest back control. But many problems that the tech industry faces today could be countered by simply giving more control over to common shareholders, thereby limiting somewhat the power that these founders have and keeping them more accountable in the long-run.

Analyst Take

Mark Zuckerberg and Facebook, Inc. are indelibly tied, that is certain. But the power that Zuckerberg wields at the company is unrivaled. And that’s beginning to spark a problem.

While he no doubt has steered his company towards profitable gains in the past, at this juncture, some pushback against him would be welcome and help settle the company as FB stock is in freefall.

While not a realistic scenario, Facebook and many other tech companies would benefit greatly from taking power away from concentrated hands and instead creating more internal checks and balances.