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Mark Zuckerberg Signed the Wrong Document
- EwanG 11y agoOK, but who was the legal eagle or director who gave him the wrong form? I would expect that somebody besides Zuckerberg had a job to get it right, and probably should be on the hook for screwing up one way or another.
- danieltillett 11y agoYes.I would imagine Z. just signs whatever the lawyers produce for him to sign after the meeting. I wonder what the outcome will be now? Doesn’t this ruling just give the lawyers the right to sue and they now have to prove the compensation was excessive?
- adventured 11y agoThe excessive compensation argument has already been dropped. There's no scenario under which a few hundred thousand dollars in compensation is going to end up being considered excessive for being a director of a $300 billion corporation. It simply will never happen. "Espinoza had sued alleging breach of fiduciary duties, waste of corporate assets and unjust enrichment. Bouchard tossed Espinoza’s waste claim, saying he couldn’t prove the directors’ compensation was unjustified. He allowed the other two claims to proceed." http://www.bloomberg.com/news/articles/2015-10-28/facebook-and-zuckerberg-must-face-claims-over-directors-pay http://www.bloomberg.com/news/articles/2015-10-28/facebook-a...
- josu 11y agoI'm not sure if they gave him the wrong form. As long as they didn't get sued for paying their directors too much, there was nothing wrong with signing as a director. I guess that they just didn't considered the option of getting sued over that.
- Mimick 11y agoIt wasn't a wrong form, it was right back then, If he signed as a shareholder it may spread a bad message too. It's only a better clickbait title of an article.
- cooperpellaton 11y agoMore surprising to me than this article was the fact that Bloomberg has spiraled off a completely different brand for editorials/commentary/opinion. It amazes me that Bloomberg View which bears the Bloomberg brand has no clear explanation of what it is, and that it is only commentary. https://en.wikipedia.org/wiki/Bloomberg_News https://en.wikipedia.org/wiki/Bloomberg_News
- chollida1 11y agoI feel kind of bad for Mark here. There is an entire cottage industry of firms that will do nothing but look for ways to use these types of procedural errors to extract money from companies. There are law firms whose sole form of income is to have hedge funds send them their daily trades so they can cross reference them against companies who had to restate earnings, the implication being that if hedge fund A owned some stock during the period where the firm had released the improper numbers and when the firm refiled then the fund can claim they were fraudulently mislead into buying the shares even though the refiling might not have mattered at all. As to the second part of the story about private companies, this is something that alot of people are trying to figure out. The last 5 years have been defined by private companies "disrupting" things where they try to have their cake and eat it to. - Want to be a taxi when it works for you but don't want all the rules, regulations, laws and taxes taht go along with it? No problem, just pretend there are no such thing as taxi laws. - Want the benefit of people to work and the ability to define how they do their job for you but don't want to bother yourself with things like payroll taxes, workers comp payments, no problem just declare that you don't have contractors or employees but some new form of worker. The IRS just ins't smart enough to see your vision... Now we have companies who want the benefits of being public - access to capital as they need it - ability for founders to cash out their shares - rising share prices to entice employee's with so they won't focus on the below market wage you pay. but don't want to petty baggage that goes along with it: - how dare someone short my company and point out its flaws - I and only I will pick my share holders, - I don't want to release earnings of any kind to my shareholders, I only want true believers who won't worry about things like profit. - Why are people asking about earnings, just look at my growth numbers and those numbers only. I think most people agree that there needs to be some reform to make it easier for companies to go public but if companies think that being "disruptive" is a technique that will work with the SEC, then that's one battle I don't think silicon valley will win. Or put another way, for all of Silicon Valley's impact over the past 50 years, its had about zero impact on the process of companies going public. When companies go public they all play ball by Wall Street and the SEC's rules.
- jmcatani 11y agoI really like your point on the Unicorns "having their cake and eating it too" in regards to public funding. I am very worried that the technology industry is creating this new capital market that reserves access for the super rich and is completely free from goverment oversight. Are there any points in history that had similar market structure? And if so, how did those markets respond to successes and failures?
- orionblastar 11y agoThere is a startup plan that is basically a cookie cutter plan that a lot of startup follow. 1. Invent new technology/software/website. 2. Get VCs to invest in it. 3. Sell ads on the website and use ML to target people with those ads. 4. IPO to go public to raise up the stock price. 5. Issue yourself a different type of stock that has different voting rights so you retain control of your company. 6. Keep investing new stuff for growth and sell off shares to raise more money. The problem is people who become CEO without ever taking a business management class or understanding how a business or the laws that effect it work. Steve Jobs found it hard and resigned from Apple in 1985 and had to go back to college to learn business management to learn how to manage a company better. It paid off when Apple merged with Next and Jobs knew how to manage Apple better than he did in 1985. We haven't seen Bitstock companies yet that trade on Bitcoin instead of the US Dollar. Nobody ever thought to make a Bitstock market based on Bitcoin. You just modify Bitcoin to issue shares of stock called Bitstock and you have issues the company puts that Bitstock can vote on based on what type of Bitstock it is, and then you avoid the lawsuits of signing the wrong document because Bitstock replaces that old system with a new one. Zuck just votes with his Bitsock on each issue and makes it official no need to sign documents anymore.
- meeper16 11y ago1. facebook did not "invent" anything, especially compared to Google, they copied text entry boxes and messaging, which anybody could easily duplicate from myspace and reworked the design. Google invented something.
- danieltillett 11y agoFacebook was very innovative, just not technically innovative. Their two big innovations were the real name policy and only letting in elite uni students to create social demand. Both seem obvious in hindsight, but nobody else at the time implemented both of these policies.
- vezzy-fnord 11y agoreal name policy and only letting in elite uni students Are we really going to describe these things as "innovations"?
- late2part 11y agoThe directors only get $300k per year for serving on the BOD of Facebook? They are worth more than that!
- fweespeech 11y agoIts a part time job.
- krapp 11y agoNot to be trite, but if they were worth more, they would be paid more.
- morgante 11y agoNot necessarily. A large portion (indeed, probably a majority) of the benefit from serving on Facebook's board comes in non-pecuniary compensation. Everyone on Facebook's board is already quite wealthy and is not serving on the board for the purpose of getting a salary.
- pjscott 11y agoThings generally are worth more to you than what you pay for them -- that's why you pay for them!
- tlrobinson 11y agoSo if Facebook loses the lawsuit, what happens? They pay the shareholders some relatively small amount and have to pay the directors less... until Mark signs the right document then they can pay them whatever they want?
- nness 11y agoI would imagine the courts would place an injunction that would set what amount should be paid and for what period of time. The court may even end up setting the same amount as the original agreement.
- grecy 11y ago...and all the lawyers make a lot of money.
- meric 11y agoIt will be a reminder to Mark Zuckerberg to take more care in his fiduciary duties, like signing with the correct letterhead.
- toast0 11y agoThis article was really hard to read because of bizarre font choices: http://imgur.com/MvCW9RP http://imgur.com/MvCW9RP on windows phone 8.1, oddly the footnotes were totally fine, just everything else was missing several pixels on the right. Can we go bad to normal fonts please?
- gopowerranger 11y agoAnd now ... on to the topic!
- brazzledazzle 11y agoYes please. I'm aware this comment itself is contributing to the off-topic problem but the constant avalanche of complaints about readability belong in the comment sections and mailboxes of the sites in question.
- hacknat 11y agoIt may seem like splitting hairs, but the Chancery court's decision makes sense. Corporate governance sounds boring and technical, but it is an important sounding board for valuation and consent. Imagine a company where two people collectively owned 51% of a public company, one of them more "in charge" than the other. If they start making all kinds of ad hoc decisions without shareholder consent, then they will never hear some important feedback from their fellow owners. What if 48% of the other shareholders don't like how they're doing x? It might just change how things are run. Minority votes and feedback are important, especially when you consider that the majority of shareholders of public companies are institutional investors they have every right to make sure their feedback is taken seriously by their executives, whether or not those executive happen to be majority shareholders or not. Don't like the rules? Then don't go public.
- tristanj 11y agoFacebook did not want to go public, they were forced to do so because of an obscure SEC investor rule. There was quite a bit of coverage on this when they announced their IPO.
- justincormack 11y agoNo, they would have had to disclose like a public company but they were not obliged to be public
- smelendez 11y agoRight--and the court doesn't want to be in the business of figuring out when to grant exceptions.
- choppaface 11y agoAn interesting issue here is if the 2-voting-class design is sustainable for new companies. The bottom of the article notes the issue with the legal docs "took place in 2013." I wish the author would have spent more time grappling with 2-class voting (which TBH the major focus of the article) rather than Zuck's clerical error. The problem with 2-class voting is that it dilutes the inherent value of non-voting shares in a way that is not reflected in the price. Shares without voting power increase inflation, right? Furthermore, a lot of tech companies have put only a small number of shares on the open market (likely at the recommendation of banks who want demand to support the share price). I guess the company will gradually become more publicly available as employees sell. I'd be curious to know what portion of public companies have multi-class voting and which ones have only about 10% available as public shares. If these practices are new and rare... something to think about.
- spacecowboy_lon 11y agoActually on the FTSE these dual class shares are disliked one even got kicked out of its index (the daily mail) I think the SEC should be much harder on this gaming of the system its undemocratic and is not in the publics best interest.
- dantiberian 11y agoFortuitously, The Information published an article about multi class voting structures today. You can read it at http://go.theinformation.com/9e6aa6 http://go.theinformation.com/9e6aa6 (I think this should work for non subscribers).
- forrestthewoods 11y agoWhat makes you say it's not reflected in price?
- glesica 11y agoThere are a ton of reasons for the price to be "wrong" if a particular practice is unusual or new. Markets only function as well as the people involved in them. If the people are all acting (unwittingly) on incomplete, incorrect, or insufficient information, then one would expect there to be risks that haven't been "priced in".
- sopooneo 11y agoIf a share barely gives you voting rights, and the company does not, and does in the foreseeable future plan to, issue dividends, then what is the inherent value of the stock? Is it just my portion of the proceeds in case of a firesale?
- pbh101 11y agoThe right to sell it when the price rises. You own a part of the company which you acquired at a price that you presumably considered below fair value. Even though there is no premium for voting rights nor expected dividends, but you still own a fraction of the company.
- gefh 11y agoA firesale, or buyout, or merger, or nationalization. It's strange, because few of those terminal events will get you a very high valuation, yet this doesn't seem to have a depressing effect on current values. But if no-one thinks too much about it, there is still plenty of liquidity, and that's really all the evidence the liquidity providers need.
- Ankaios 11y agoAny sale—not necessarily a fire sale.
- iabacu 11y agoThere's usually a provision on super-voting shares that automatically convert them to common shares upon transfer. So, in an event where Mark passes away, decides to sell, etc, then the rest of the shares will have more voting power, relatively.
- TearsInTheRain 11y agoDividends are definitely the primary way of rewarding shareholders but another way a company can reward its shareholders is by doing a buyback. Owning a share gives you ownership over a portion of a companies profits so it is very tangible even if it only exists for you on paper for the time being.
- jegutman 11y ago
- yeukhon 11y ago> But the law sees him as just another shareholder, whose large shareholdings and job as CEO are coincidental, whose control of the company can be measured purely by numbers and without reference to his personal relationships and history. Not being totally ignorant about this, but the strawman example would be "just because you are the President of the United States of America doesn't make you invincible; you are still a citizen in front of the law, you may get away with some immediate legal charges, but you still have to face the Congress for any misconduct." However, I argue, while the law is supposedly being above all, the framework which gives the President the power to govern the Executive branch is exactly what makes him nearly invincible until someone yelling at him in the newspaper. Mark can be a total prick, fire someone he doesn't like, make up evidences, as long as no one talks and proves that he is forging evidence. This sounds like a Hollywood plot? You bet it is, because he totally can do that as the Emperor of Facebook. He can lead the product to toilet. He can say he likes to own the entire floor alone and have everyone work from a cubicle instead of open-floor plan. Fine. You can sue him, challenge him, but he owns the company. Sounds cynical, you bet. The laws can take him away from the company, but it requires humans to actually make the laws or changes to replace him.
- adventured 11y ago> These startups are extensions of their founders in a way that public companies are not, and that public markets are not comfortable with. Yeah, the public markets are so uncomfortable with it, they've given Google a $512 billion market cap, and Facebook a $295 billion market cap.
- deleted 11y ago[deleted]
- downandout 11y agoThe "investors" suing are just working with/for attorneys that extort massive legal fees and damages from public companies for a living. This case has nothing to do with the underlying conduct, which was merely a clerical error. These attorneys are one of the big reasons that unicorns are staying private. The most famous of these bottom-feeding attorneys, Bill Lerach, built an estimated net worth of $700 million [1] by creating exactly these kinds of nonsensical shareholder lawsuits against public companies. He also earned a short prison stint and a $7.5M fine for bribing shareholders to become plaintiffs in 150 of the cases he filed. Here is a fascinating video [2], entitled The Rise and Fall of Bill Lerach. [1] http://www.bloomberg.com/news/articles/2011-10-12/convicted-king-of-class-actions-bill-lerach-builds-aviary-regrets-nothing http://www.bloomberg.com/news/articles/2011-10-12/convicted-... [2] https://www.youtube.com/watch?v=wYIC9GU9OeM https://www.youtube.com/watch?v=wYIC9GU9OeM
- MrJagil 11y agoIt's interesting, reading your comment I was of the impression that Lerach must be universally disliked for his slimy methods, exploitation of the system and oppressiveness in the free market (unicorns scared to go public). Reading the first comment on the linked youtube video(i know) reminded me once again to be sceptical of everything i read though: "Bill Lerach, the former #1 enemy of corrupted corporations. He may not have acted out of personal values but at least for a while corporations had the fear in the back of their minds that if they were going to act unethically it might cost them millions of dollars in security class actions and corporate derivative suits. Where as now they are able to act in a fraudulent manner without fear of consequences. Larach is the most sincere lawyer I have ever seen. He also seems like a really likable guy." I'm unsure what to believe now, though I don't feel signing the wrong paper by accident is evidence of a "corrupted corporation". Of course, could also be the youtube commment was very sarcastic.
- downandout 11y agoTo be sure, his work was a mixed bag. His firm ran the shareholder case against Enron, which clearly was not baseless litigation (his personal share of the legal fees awarded in that case alone was rumored to be $80 million). However, having read a few things about him, the majority of the cases he brought were designed to extort quick settlements out of the companies. He was/is reviled by corporate America, and he probably appeals to the anti-corporate crowd that likes to see large corporations suffer simply because they are successful. That is why you see varying opinions.
- jokoon 11y agoSo many wasps buzzing around for that sweet honey. That's why you're vulnerable if you're not careful and don't hold a law degree.
- balabaster 11y agoI'm not sure I fully understand this. Perhaps someone can explain. What the fuck does which piece of paper he signed change? If I understand this correctly, the bare facts are: 1). Zuckerberg is a director, this doesn't seem to be in dispute. 2). Zuckerberg makes up the shareholder majority with 60% of the shares, this also doesn't seem to be in dispute. 3). Zuckerberg believed that the salaries awarded to the board of directors were fair, I guess this could be argued except for... 4). There is paperwork that proves he believed this prior to commencement of this lawsuit... it may be the wrong paperwork, but it is still indisputable evidence that he held this belief at such a time as which this lawsuit would be unfounded. 5). The law states that so long as the shareholder majority (which is proven by number 2) decides the awarded salaries are fair (which is assumed by 3 and proven by 4), then they are fair. No amount of paper shuffling or hypothesizing that will change this conclusion. The judge should point out the clerical error, tell him to fix it and throw the case out. This kind of bullshit is the reason why the court system is under so much pressure and can't try real cases; and also why bottom feeding lawyers are making so much money just to be giant pains in the ass to society while extorting a shit ton of money, endorsed by the legal system to fuel future bullshit lawsuits. Has the legal system/department of justice taken leave of its senses?
- k__ 11y ago> 2). Zuckerberg makes up the shareholder majority with 60% of the shares, this also doesn't seem to be in dispute. Nope, he has 60% of the voting power, but not 60% of the shares. He simply owns shares that give him more votes per share. He isn't owning the majority of Facebook anymore, so he is considered a "regular" shareholder. But because of his voting power, he can act like he owns the place most of the time.
- balabaster 11y agoThe result is the same, but thanks for that clarity. Your point clears up a misunderstanding I've had about how that works for a while.
- k__ 11y ago
- mark_l_watson 11y agoWow, $300K for a director salary does not seem like much, given the connections and experience they have. IANAL, but that seems like a crazy lawsuit.