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Facebook Investors Criticize Marc Andreessen for Conflict of Interest

252 points by applecore 10y ago

applecore 10y ago
From the article: "The cat's in the bag and the bag's in the river," [Andreessen] messaged Zuckerberg. "Does that mean the cat's dead?" Zuckerberg texted back, not understanding the spy speak. Andreessen replied: "Mission accomplished :)"
- golergka 10y ago
  That's Silicon Valley material right there.
gourou 10y ago
> one of the concessions Zuckerberg wanted -- to allow the billionaire to serve two years in government without losing control of Facebook -- would look particularly irresponsible So he wants to run for office while maintaining control of the platform where people get their news from?
- zitterbewegung 10y ago
  They should launch a political targeting advertisement app and call it Rosebud.
  - Balgair 10y ago
    Or the Domed Teapot
- jacalata 10y ago
  "serve in government" does not necessarily imply "run for office"
- eli_gottlieb 10y ago
  Well, going full Berlusconi seems to be popular these days.
angersock 10y ago
Isn't this just an example of the risk you take by investing in a company with majority stake held by one person?
- matthewmcg 10y ago
  Generally yes, but Delaware law provides protections for minority investors when the controlling shareholder is on both sides of a transaction. Here, the board of directors appointed a special committee of supposedly disinterested directors to review the proposal and ensure that it was fair to the minority shareholders. When a transaction is "blessed" in this way it is very hard for a shareholder to challenge it. The investors allege that two of the three committee members weren't really disinterested because of their personal and business ties to Zuckerberg.
  - yuhong 10y ago
    I wonder if this is actually a good idea in the first place.
- lmm 10y ago
  The risk that the company will ignore or subvert their legal obligation to have a special committee review decisions that impact minority shareholders? No, I don't think that's a risk you accept. We live in a country with the rule of law.
jashmenn 10y ago
To me, as a founder (and former a16z portfolio company employee), this sort of thing shows why you'd want investment from a16z. They have a reputation for being founder-friendly. So while this gets spun as some sort of scandal, instead I think this quietly paints a16z in a friendly light.
- ihsw 10y ago
  It's good only if Zuckerberg comes out smelling like roses, otherwise it might give some pause.
- bravo22 10y ago
  or does it represent a lack of respect for fiduciary duty and a willingness to bend law and ethics to serve yourself? Wouldn't it be a bad signal that this person, if on your board, might pull a similar thing but to your detriment? Say if FB wanted to acquire you, would he take your side or MZ's? Would he give you advice that was beneficial to MZ but detrimental to your company? To be clear I'm not saying MA is actually guilty as the lawsuit alleges, but I'm assuming the facts are true since your conclusion relies on the same premise.
- anotherarray 10y ago
  I'm sorry, but this looks like a selfish, one-sided view. >The plaintiffs suing Facebook's board include pension funds, like the Employee Retirement System for the city of Providence, Rhode Island, and individual investors It may be "founder-friendly", but it's hurting thousands of Average Joes.
  - moxious 10y ago
    In the article one of the main points is protecting Zuckerberg's long term control, in the event that he "spent 2 years in government". If that's not telegraphing intent, I don't know what is. So it appears pretty clear that there's a bigger career game being played here, and it isn't even strictly about stock.
  - nailer 10y ago
    I can see the point, but it could also be argued that a large part of the value of FB is created by the control of Zuckerberg. FB can move much faster without having to move everything past shareholders. And the shareholder's primary interests are making money.
chrischen 10y ago
Why didn't Zuckerberg and Andreesen use facebook's secret conversation mode?
anotherarray 10y ago
Isn't it ironic they're both facing the same privacy concerns they helped to create?
sethbannon 10y ago
This article seems to have an agenda. It feels like it's intentionally portraying things in a mischievous frame. Maybe that's just because it's getting its information from a lawsuit written by hostile lawyers, but it still doesn't seem unbiased. As an example, the line "While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them." could easily have been written as "While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions."
- forgetsusername 10y ago
  >"While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions." The lawsuit is alleging Andreesen had no right to do that, regardless of how you try to colour it.
mwambua 10y ago
I'm curious to know what messaging platform did they used? Also, were they aware that any communication via the platform would be monitored?
- Bartweiss 10y ago
  This was the question I wanted answered as soon as the article quoted specific texts. It's possible that these things weren't monitored, but were disclosed as part of the suit. Even so, I'm a bit surprised that an exchange like this was retained at all, rather than run through an encrypted texting app and the history regularly deleted. It's one of those stories where the existence of the records is at least as surprising as their contents.
  - mwambua 10y ago
    Yeah. I find it really interesting that people of their status would not take more precautions to ensure the privacy of their conversations.
- bigtones 10y ago
  They uses SMS text messages, which were subpoenaed as part of the lawsuit, and disclosed as part of the suit filing with the Delaware court. Their communication was not monitored at the time.
arikr 10y ago
If I'm curious to read the entire court documents, does anyone know where to find them? Googling with no luck. "The case In RE Facebook Class C Reclassification Litigation, CA 12228, Delaware Chancery Court (Wilmington)"
- matthewmcg 10y ago
  The main proceeding is captioned "Southeastern Penn. Trans. Auth. v. Zuckerberg". You can read the complaint here: https://www.chimicles.com/wp-content/uploads/2016/05/File-Stamped-Facebook-Complaint.pdf https://www.chimicles.com/wp-content/uploads/2016/05/File-St...
  - arikr 10y ago
    Doesn't appear to have any of the quoted things from the bloomberg piece i.e. the text messages, doesn't mention the Zuckerberg <> Andreessen communication at all
- FireBeyond 10y ago
  May take a little while to show up, apparently they were only recently unsealed.
relaunched 10y ago
Marc's point about the governance requirement being moot because the government would require Zuck to give up his position in FB anyway is particularly poignant now. The government certainly hasn't figured out what to do with PE Trump and his business interests, nor the interests of the other billionaires he's appointing to key positions.
- knorby 10y ago
  Trump is also unique from pretty much anyone else in government with regard to conflict of interest law, as is part of the discussion now. Given the term mentioned was two years for Zuck, he couldn't be president and remain in control of Facebook.
quickConclusion 10y ago
Founders will like the move. If you are a big investor, the first question during an IPO roadshow of the next a16z-backed company may well be: "a16z, are you leaving the board after the IPO?"
mgleason_3 10y ago
Wait, Mark Zuckerberg, the guy who screwed one of his initial investors out of a huge amount of stock, now wants to screw his stockholders with inside help from a board member. He could maintain control even if he sells most of his stock and is completely distracted by something else - like running for office. But, its OK because some of the money would be used for philanthropy?
- renaudg 10y ago
  The real Eduardo Saverin story is not the one depicted in the "Social Network" movie.
  - tinkerrr 10y ago
    Do you know the real Eduardo Saverin story? Genuinely curious
    - renaudg 10y ago
      I don't have any insider knowledge, but here's a good account : http://www.businessinsider.com.au/how-mark-zuckerberg-booted-his-co-founder-out-of-the-company-2012-5 http://www.businessinsider.com.au/how-mark-zuckerberg-booted... In a nutshell: when Zuck & friends moved to Palo Alto for the summer to work on Facebook, Saverin decided to take an internship at Lehman Brothers in NYC instead. It became increasingly hard to get his attention, even as his approval was required for a crucial funding step. Worse still, Saverin then ran unauthorized ads on the platform for a side project of his. He kept asking about parties in Palo Alto. That's when Zuck decided that enough was enough and started to cut him off. So it's fair to say, at the very least, that the culture fit wasn't there and that the Social Network movie didn't paint the whole picture. I think it's also fair to say that Saverin brought all this upon himself by repeatedly failing to show commitment in the company, and that he still got a sweet deal in the end because Facebook wouldn't have been anywhere near as valuable had he remained involved.
  - rahrahrah 10y ago
    It actually is. And Eduardo Saverin got a few million in damages for what would be a hundreds of billion in stock that was stolen from him.
__derek__ 10y ago
Regardless of how the suit transpires, letting someone maintain control of a public company while divesting themselves of the risk associated with ownership strikes me as a bad idea.
- sireat 10y ago
  Unfortunately, this lack of regard for minority shareholders seems the norm these days. Google is a similar offender. Let's not even mention what happens when you buy Alibaba shares, whatever you own is not Alibaba. The problem arises when company starts going in a direction that most shareholders would object to. What can you do then? Let's say Zuck ends up owning 10 % of FB but still has the control of the voting shares. Zuck decides that FB should buy an island and attempt to breed dinosaurs at a cost of cool 50B, should not the other shareholders have any say in this? Seems ridiculous but what if instead of an island that 50B is spent on building some futuristic headquarters. Ok Apple is going along this path but as a shareholder you should have a say in major decisions. At least with a company like Oracle there is a possibility that Carl Icahn could raise enough money to put Larry in his place should Oracle start making boneheaded decisions. With FB you cannot do anything if you do not like the direction Mark is taking the company. As someone else posted, if you want to call the shots without being subjected to public scrutiny then own 51% of the company or do a private buyout like Dell did. Again the fault lies with the investors who are not averse to buying phantom claims since there is the next greater fool after them.
  - kuschku 10y ago
    On the other hand, you can’t just give shareholders all the power – or you’ll just get corporate raiders, buying 51% of shares, doing a takeover, selling everything valuable, and destroying jobs. We’ve seen that so often in the past years in Germany, it’s completely ridiculous.
    - JamesBarney 10y ago
      If your tangible assets are worth more than your company, your company is doing it wrong. For the other side of this equation see Japan, and their zombie companies.
rahrahrah 10y ago
These are a bunch of bad people.
rubyn00bie 10y ago
... im probably on an island alone here with my opinion but... I'm glad this is being brought to light... and that investors are angry. This sort of action I think should be wildly illegal. It's removing a great deal of value from one's share. That value is being able to vote. I'm not a FB shareholder but if they had removed my voting power (or rather made it a 1/3 of what it was) I'd want compensation and then I'd sell my shares. This sort of crap is propagating a big issue: the separation of management and control from ownership of companies. It invites irresponsibility and selfishness because the cost of such to management is continuously decreasing. While the owners (shareholders) are the ones to pay the real price for their actions. This is how we have problems like CEOs losing money quarter after quarter but still getting bonuses and ever larger golden parachutes... It's easy to say he's a "visionary" now but the markets facebook has ridden its growth on were not a result of it being amazing. It was a combination of the right time, luck, and a bit of vision (he does deserve some credit). Now that markets are saturated we'll see how truly visionary he is... acquiring for growth targets doesn't make him visionary it just makes him a good business person. If he can't grow it or his vision is off-- it won't matter, if he missteps and costs his shareholders. He and his cronies will still be rich as hell and his shareholders will pay the price.
- drieddust 10y ago
  I think he showed his class when he tweeted against India after losing Free Basics campaign. Edit: typo
- harryh 10y ago
  The very similar prices of GOOG vs GOOGL kind of contradicts your assertion that the voting rights of shares are particularly valuable.
  - rubyn00bie 10y ago
    Well... my apologies for not emphasizing more that it's my feeling of value. Not necessarily the market's... as you're right, by and large the market doesn't care. But their darlings are still performing well. I think a lot of investors are largely ignorant of the voting fact and I also think, most don't get involved until things go badly; so, we'll see how the long term plays out to really know.
mi100hael 10y ago
The whole notion of different stock classes for plebs vs insiders is a racket, anyway. It makes no sense that someone could own a small minority of shares and yet still exert total control over a company. If you want to raise money and put yourself on a market without giving up control, you issue bonds like companies have done for years.
- arjunnarayan 10y ago
  Nobody forced you to buy Facebook shares. The stock classes were disclosed at IPO. These were the terms. If you want to buy into a company and have control, buy some other company's stock.
  - sireat 10y ago
    Even those shareholders buying the lesser class stock at IPO had certain rights. The whole point of the lawsuit is that certain shareholder rights were violated by board's actions.
    - arjunnarayan 10y ago
      Yes, I agree with you. I'm replying specifically to the parent comment that says dual class stock is a 'racket'.
- golergka 10y ago
  How a deal that two sides voluntarily agreed on can be a racket?
insider123456 10y ago
Insider Insider Trading Under U.S. securities law, the term “insider” is technically used to refer to any individual who is an officer or a director of an issuer or who is a beneficial owner of more than 10% of any class of an issuer’s outstanding securities. Insiders are subject to special reporting requirements and certain other restrictions upon their ability to trade securities of the issuer. Because of their relationship with the issuer, these individuals are also more likely to become aware of material, nonpublic information regarding the issuer. However, for purposes of insider trading rules and regulations, insiders are not just limited to those who meet the technical definition of a corporate insider. Any individual who has special access to or otherwise comes into possession of material, nonpublic information regarding an issuer could be considered an insider. If such an individual trades in the securities of the issuer based on this information, he or she is considered to have engaged in insider trading and may be subject to both civil and criminal penalties.
deleted 10y ago
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erebus_rex 10y ago
Could someone explain why this would dilute voting power? Voting power of an investor = votes held by investor / total votes While the dividend will slash the economic ownership of my class A stock, that stock still has the same voting power because the number of votes and distribution of those votes has not changed. Am I missing something?
- ThrustVectoring 10y ago
  It's not the split that dilutes things, it's Mark Zuckerberg's sale of non-voting stock. The split changes nothing - the sale means that non-Zuckerberg FB shares have less voting rights per dollar invested. (Basically tautologically, since Zuckerberg's shares have more voting rights per dollar of value).
- cbr 10y ago
  So he proposed setting up a new Facebook stock class. The new shares would automatically dilute the voting power of existing shareholders, because every share with voting power will split into three shares -- one that has power, and two that don't. I think the argument is something like: people knew Zuckerberg would want to get money out of FB, so even though he currently had majority control they expected he would give it up soon. Introducing multiple stock classes allows him to sell stock while keeping majority control, so he's reducing other people's voting power relative to expectations, while technically everyone who had N votes before the split still has N votes after the split.
slezakattack 10y ago
Interesting to note: The Andreessen-Zuckerberg friendship goes a bit deeper. Andreessen's wife, Laura Arrillaga, advised Zuckerberg and his wife on making the $100MM gift to education in New Jersey. Now that Zuckerberg would like to sell his shares for philanthropy, there's probably a good chance they'll continue to go through the Andreessen's for advising. In which case, the Andreessen family will still be making money (not to say that they aren't making money now...) as I'm sure the advising is not free. Win-win.
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golergka 10y ago
> When they met, Zuckerberg, new to Silicon Valley, didn't know what Netscape was. A young man who was presumably actively using internet didn't know what Netscape was, around 2004?
- cbr 10y ago
  Zuckerberg is a couple years older than me and I knew what Netscape was then, so I'd be pretty surprised if he didn't. (Though in 2004 we had already had Netscape -> Mozilla Suite -> Phoenix -> Firebird -> Firefox, so lots of names to keep straight.)
3pt14159 10y ago
If you're watching carefully this shouldn't be exactly surprising. When the Snowden revelations came out Andreessen said that Snowden was a traitor because the revelations didn't reveal anything that anyone in the know didn't already know: that there was a massive dragnet surveillance program by FVEY. Now, I know I'm a distant minority here when I say that I think that dragnet surveillance is a good thing (I think our opponents are going to do it anyway and we should know what they get, though I'm mostly against secret courts / laws / etc), but what I don't like is hiding information of critical importance from the democracy. Should we have dragnet surveillance, I say Yes, and I'd like to convince you all of my view; but the critical part is that I don't presuppose myself so important as to label someone like Snowden a traitor just because he's brought to light something that a few of us have known for a while. Andreessen not only argues for dragnet surveillance, he argues that Snowden is a traitor. It's in the same elitist vein as the conflict of interest issue with Facebook. He views himself as above us all. This isn't unique amongst the SV elite, but it usually isn't so hopelessly beyond the pale that it so obviously spills over into becoming obvious.
- specialist 10y ago
  He views himself as above us all. John Galt.
asher_ 10y ago
Does anyone know what happens in the eventuality of Mark's death or incapacity? I don't think control like this is inherently wrong, as it seems to have worked well for Google, but I do wonder what happens after the founders die. These rather extraordinary provisions for control of public companies make sense when being granted to specific, exceptional individuals, but less so as a general power that can be transferred. So, does anyone know what would happen in that case?
mikebay 10y ago
Investors should be worryed more about Facebook's privacy issues and worldwide taxation problems. They hide they assets, just like google. Facebook, Not my choice. Too much privacy trust issues, fake news pushing and censorship business!

252 points by applecore 10y ago

From the article: "The cat's in the bag and the bag's in the river," [Andreessen] messaged Zuckerberg. "Does that mean the cat's dead?" Zuckerberg texted back, not understanding the spy speak. Andreessen replied: "Mission accomplished :)"

golergka 10y ago
That's Silicon Valley material right there.

gourou 10y ago

> one of the concessions Zuckerberg wanted -- to allow the billionaire to serve two years in government without losing control of Facebook -- would look particularly irresponsible So he wants to run for office while maintaining control of the platform where people get their news from?

zitterbewegung 10y ago
They should launch a political targeting advertisement app and call it Rosebud.
- Balgair 10y ago
  Or the Domed Teapot
jacalata 10y ago
"serve in government" does not necessarily imply "run for office"
eli_gottlieb 10y ago
Well, going full Berlusconi seems to be popular these days.

angersock 10y ago

Isn't this just an example of the risk you take by investing in a company with majority stake held by one person?

matthewmcg 10y ago
Generally yes, but Delaware law provides protections for minority investors when the controlling shareholder is on both sides of a transaction. Here, the board of directors appointed a special committee of supposedly disinterested directors to review the proposal and ensure that it was fair to the minority shareholders. When a transaction is "blessed" in this way it is very hard for a shareholder to challenge it. The investors allege that two of the three committee members weren't really disinterested because of their personal and business ties to Zuckerberg.
- yuhong 10y ago
  I wonder if this is actually a good idea in the first place.
lmm 10y ago
The risk that the company will ignore or subvert their legal obligation to have a special committee review decisions that impact minority shareholders? No, I don't think that's a risk you accept. We live in a country with the rule of law.

jashmenn 10y ago

To me, as a founder (and former a16z portfolio company employee), this sort of thing shows why you'd want investment from a16z. They have a reputation for being founder-friendly. So while this gets spun as some sort of scandal, instead I think this quietly paints a16z in a friendly light.

ihsw 10y ago
It's good only if Zuckerberg comes out smelling like roses, otherwise it might give some pause.
bravo22 10y ago
or does it represent a lack of respect for fiduciary duty and a willingness to bend law and ethics to serve yourself? Wouldn't it be a bad signal that this person, if on your board, might pull a similar thing but to your detriment? Say if FB wanted to acquire you, would he take your side or MZ's? Would he give you advice that was beneficial to MZ but detrimental to your company? To be clear I'm not saying MA is actually guilty as the lawsuit alleges, but I'm assuming the facts are true since your conclusion relies on the same premise.
anotherarray 10y ago
I'm sorry, but this looks like a selfish, one-sided view. >The plaintiffs suing Facebook's board include pension funds, like the Employee Retirement System for the city of Providence, Rhode Island, and individual investors It may be "founder-friendly", but it's hurting thousands of Average Joes.
- moxious 10y ago
  In the article one of the main points is protecting Zuckerberg's long term control, in the event that he "spent 2 years in government". If that's not telegraphing intent, I don't know what is. So it appears pretty clear that there's a bigger career game being played here, and it isn't even strictly about stock.
- nailer 10y ago
  I can see the point, but it could also be argued that a large part of the value of FB is created by the control of Zuckerberg. FB can move much faster without having to move everything past shareholders. And the shareholder's primary interests are making money.

chrischen 10y ago

Why didn't Zuckerberg and Andreesen use facebook's secret conversation mode?

anotherarray 10y ago

Isn't it ironic they're both facing the same privacy concerns they helped to create?

sethbannon 10y ago

This article seems to have an agenda. It feels like it's intentionally portraying things in a mischievous frame. Maybe that's just because it's getting its information from a lawsuit written by hostile lawyers, but it still doesn't seem unbiased. As an example, the line "While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them." could easily have been written as "While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions."

forgetsusername 10y ago
>"While on the committee, Andreessen kept Zuckerberg up to date about their progress and concerns, helping Zuckerberg know how to best proceed with the discussions." The lawsuit is alleging Andreesen had no right to do that, regardless of how you try to colour it.

mwambua 10y ago

I'm curious to know what messaging platform did they used? Also, were they aware that any communication via the platform would be monitored?

Bartweiss 10y ago
This was the question I wanted answered as soon as the article quoted specific texts. It's possible that these things weren't monitored, but were disclosed as part of the suit. Even so, I'm a bit surprised that an exchange like this was retained at all, rather than run through an encrypted texting app and the history regularly deleted. It's one of those stories where the existence of the records is at least as surprising as their contents.
- mwambua 10y ago
  Yeah. I find it really interesting that people of their status would not take more precautions to ensure the privacy of their conversations.
bigtones 10y ago
They uses SMS text messages, which were subpoenaed as part of the lawsuit, and disclosed as part of the suit filing with the Delaware court. Their communication was not monitored at the time.

arikr 10y ago

If I'm curious to read the entire court documents, does anyone know where to find them? Googling with no luck. "The case In RE Facebook Class C Reclassification Litigation, CA 12228, Delaware Chancery Court (Wilmington)"

matthewmcg 10y ago
The main proceeding is captioned "Southeastern Penn. Trans. Auth. v. Zuckerberg". You can read the complaint here: https://www.chimicles.com/wp-content/uploads/2016/05/File-Stamped-Facebook-Complaint.pdf https://www.chimicles.com/wp-content/uploads/2016/05/File-St...
- arikr 10y ago
  Doesn't appear to have any of the quoted things from the bloomberg piece i.e. the text messages, doesn't mention the Zuckerberg <> Andreessen communication at all
FireBeyond 10y ago
May take a little while to show up, apparently they were only recently unsealed.

relaunched 10y ago

Marc's point about the governance requirement being moot because the government would require Zuck to give up his position in FB anyway is particularly poignant now. The government certainly hasn't figured out what to do with PE Trump and his business interests, nor the interests of the other billionaires he's appointing to key positions.

knorby 10y ago
Trump is also unique from pretty much anyone else in government with regard to conflict of interest law, as is part of the discussion now. Given the term mentioned was two years for Zuck, he couldn't be president and remain in control of Facebook.

quickConclusion 10y ago

Founders will like the move. If you are a big investor, the first question during an IPO roadshow of the next a16z-backed company may well be: "a16z, are you leaving the board after the IPO?"

mgleason_3 10y ago

Wait, Mark Zuckerberg, the guy who screwed one of his initial investors out of a huge amount of stock, now wants to screw his stockholders with inside help from a board member. He could maintain control even if he sells most of his stock and is completely distracted by something else - like running for office. But, its OK because some of the money would be used for philanthropy?

renaudg 10y ago
The real Eduardo Saverin story is not the one depicted in the "Social Network" movie.
- tinkerrr 10y ago
  Do you know the real Eduardo Saverin story? Genuinely curious
  - renaudg 10y ago
    I don't have any insider knowledge, but here's a good account : http://www.businessinsider.com.au/how-mark-zuckerberg-booted-his-co-founder-out-of-the-company-2012-5 http://www.businessinsider.com.au/how-mark-zuckerberg-booted... In a nutshell: when Zuck & friends moved to Palo Alto for the summer to work on Facebook, Saverin decided to take an internship at Lehman Brothers in NYC instead. It became increasingly hard to get his attention, even as his approval was required for a crucial funding step. Worse still, Saverin then ran unauthorized ads on the platform for a side project of his. He kept asking about parties in Palo Alto. That's when Zuck decided that enough was enough and started to cut him off. So it's fair to say, at the very least, that the culture fit wasn't there and that the Social Network movie didn't paint the whole picture. I think it's also fair to say that Saverin brought all this upon himself by repeatedly failing to show commitment in the company, and that he still got a sweet deal in the end because Facebook wouldn't have been anywhere near as valuable had he remained involved.
- rahrahrah 10y ago
  It actually is. And Eduardo Saverin got a few million in damages for what would be a hundreds of billion in stock that was stolen from him.

__derek__ 10y ago

Regardless of how the suit transpires, letting someone maintain control of a public company while divesting themselves of the risk associated with ownership strikes me as a bad idea.

sireat 10y ago
Unfortunately, this lack of regard for minority shareholders seems the norm these days. Google is a similar offender. Let's not even mention what happens when you buy Alibaba shares, whatever you own is not Alibaba. The problem arises when company starts going in a direction that most shareholders would object to. What can you do then? Let's say Zuck ends up owning 10 % of FB but still has the control of the voting shares. Zuck decides that FB should buy an island and attempt to breed dinosaurs at a cost of cool 50B, should not the other shareholders have any say in this? Seems ridiculous but what if instead of an island that 50B is spent on building some futuristic headquarters. Ok Apple is going along this path but as a shareholder you should have a say in major decisions. At least with a company like Oracle there is a possibility that Carl Icahn could raise enough money to put Larry in his place should Oracle start making boneheaded decisions. With FB you cannot do anything if you do not like the direction Mark is taking the company. As someone else posted, if you want to call the shots without being subjected to public scrutiny then own 51% of the company or do a private buyout like Dell did. Again the fault lies with the investors who are not averse to buying phantom claims since there is the next greater fool after them.
- kuschku 10y ago
  On the other hand, you can’t just give shareholders all the power – or you’ll just get corporate raiders, buying 51% of shares, doing a takeover, selling everything valuable, and destroying jobs. We’ve seen that so often in the past years in Germany, it’s completely ridiculous.
  - JamesBarney 10y ago
    If your tangible assets are worth more than your company, your company is doing it wrong. For the other side of this equation see Japan, and their zombie companies.

rahrahrah 10y ago

These are a bunch of bad people.

rubyn00bie 10y ago

... im probably on an island alone here with my opinion but... I'm glad this is being brought to light... and that investors are angry. This sort of action I think should be wildly illegal. It's removing a great deal of value from one's share. That value is being able to vote. I'm not a FB shareholder but if they had removed my voting power (or rather made it a 1/3 of what it was) I'd want compensation and then I'd sell my shares. This sort of crap is propagating a big issue: the separation of management and control from ownership of companies. It invites irresponsibility and selfishness because the cost of such to management is continuously decreasing. While the owners (shareholders) are the ones to pay the real price for their actions. This is how we have problems like CEOs losing money quarter after quarter but still getting bonuses and ever larger golden parachutes... It's easy to say he's a "visionary" now but the markets facebook has ridden its growth on were not a result of it being amazing. It was a combination of the right time, luck, and a bit of vision (he does deserve some credit). Now that markets are saturated we'll see how truly visionary he is... acquiring for growth targets doesn't make him visionary it just makes him a good business person. If he can't grow it or his vision is off-- it won't matter, if he missteps and costs his shareholders. He and his cronies will still be rich as hell and his shareholders will pay the price.

drieddust 10y ago
I think he showed his class when he tweeted against India after losing Free Basics campaign. Edit: typo
harryh 10y ago
The very similar prices of GOOG vs GOOGL kind of contradicts your assertion that the voting rights of shares are particularly valuable.
- rubyn00bie 10y ago
  Well... my apologies for not emphasizing more that it's my feeling of value. Not necessarily the market's... as you're right, by and large the market doesn't care. But their darlings are still performing well. I think a lot of investors are largely ignorant of the voting fact and I also think, most don't get involved until things go badly; so, we'll see how the long term plays out to really know.

mi100hael 10y ago

The whole notion of different stock classes for plebs vs insiders is a racket, anyway. It makes no sense that someone could own a small minority of shares and yet still exert total control over a company. If you want to raise money and put yourself on a market without giving up control, you issue bonds like companies have done for years.

arjunnarayan 10y ago
Nobody forced you to buy Facebook shares. The stock classes were disclosed at IPO. These were the terms. If you want to buy into a company and have control, buy some other company's stock.
- sireat 10y ago
  Even those shareholders buying the lesser class stock at IPO had certain rights. The whole point of the lawsuit is that certain shareholder rights were violated by board's actions.
  - arjunnarayan 10y ago
    Yes, I agree with you. I'm replying specifically to the parent comment that says dual class stock is a 'racket'.
golergka 10y ago
How a deal that two sides voluntarily agreed on can be a racket?

insider123456 10y ago

Insider Insider Trading Under U.S. securities law, the term “insider” is technically used to refer to any individual who is an officer or a director of an issuer or who is a beneficial owner of more than 10% of any class of an issuer’s outstanding securities. Insiders are subject to special reporting requirements and certain other restrictions upon their ability to trade securities of the issuer. Because of their relationship with the issuer, these individuals are also more likely to become aware of material, nonpublic information regarding the issuer. However, for purposes of insider trading rules and regulations, insiders are not just limited to those who meet the technical definition of a corporate insider. Any individual who has special access to or otherwise comes into possession of material, nonpublic information regarding an issuer could be considered an insider. If such an individual trades in the securities of the issuer based on this information, he or she is considered to have engaged in insider trading and may be subject to both civil and criminal penalties.

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erebus_rex 10y ago

Could someone explain why this would dilute voting power? Voting power of an investor = votes held by investor / total votes While the dividend will slash the economic ownership of my class A stock, that stock still has the same voting power because the number of votes and distribution of those votes has not changed. Am I missing something?

ThrustVectoring 10y ago
It's not the split that dilutes things, it's Mark Zuckerberg's sale of non-voting stock. The split changes nothing - the sale means that non-Zuckerberg FB shares have less voting rights per dollar invested. (Basically tautologically, since Zuckerberg's shares have more voting rights per dollar of value).
cbr 10y ago
So he proposed setting up a new Facebook stock class. The new shares would automatically dilute the voting power of existing shareholders, because every share with voting power will split into three shares -- one that has power, and two that don't. I think the argument is something like: people knew Zuckerberg would want to get money out of FB, so even though he currently had majority control they expected he would give it up soon. Introducing multiple stock classes allows him to sell stock while keeping majority control, so he's reducing other people's voting power relative to expectations, while technically everyone who had N votes before the split still has N votes after the split.

slezakattack 10y ago

Interesting to note: The Andreessen-Zuckerberg friendship goes a bit deeper. Andreessen's wife, Laura Arrillaga, advised Zuckerberg and his wife on making the $100MM gift to education in New Jersey. Now that Zuckerberg would like to sell his shares for philanthropy, there's probably a good chance they'll continue to go through the Andreessen's for advising. In which case, the Andreessen family will still be making money (not to say that they aren't making money now...) as I'm sure the advising is not free. Win-win.

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golergka 10y ago

> When they met, Zuckerberg, new to Silicon Valley, didn't know what Netscape was. A young man who was presumably actively using internet didn't know what Netscape was, around 2004?

cbr 10y ago
Zuckerberg is a couple years older than me and I knew what Netscape was then, so I'd be pretty surprised if he didn't. (Though in 2004 we had already had Netscape -> Mozilla Suite -> Phoenix -> Firebird -> Firefox, so lots of names to keep straight.)

3pt14159 10y ago

If you're watching carefully this shouldn't be exactly surprising. When the Snowden revelations came out Andreessen said that Snowden was a traitor because the revelations didn't reveal anything that anyone in the know didn't already know: that there was a massive dragnet surveillance program by FVEY. Now, I know I'm a distant minority here when I say that I think that dragnet surveillance is a good thing (I think our opponents are going to do it anyway and we should know what they get, though I'm mostly against secret courts / laws / etc), but what I don't like is hiding information of critical importance from the democracy. Should we have dragnet surveillance, I say Yes, and I'd like to convince you all of my view; but the critical part is that I don't presuppose myself so important as to label someone like Snowden a traitor just because he's brought to light something that a few of us have known for a while. Andreessen not only argues for dragnet surveillance, he argues that Snowden is a traitor. It's in the same elitist vein as the conflict of interest issue with Facebook. He views himself as above us all. This isn't unique amongst the SV elite, but it usually isn't so hopelessly beyond the pale that it so obviously spills over into becoming obvious.

specialist 10y ago
He views himself as above us all. John Galt.

asher_ 10y ago

Does anyone know what happens in the eventuality of Mark's death or incapacity? I don't think control like this is inherently wrong, as it seems to have worked well for Google, but I do wonder what happens after the founders die. These rather extraordinary provisions for control of public companies make sense when being granted to specific, exceptional individuals, but less so as a general power that can be transferred. So, does anyone know what would happen in that case?

mikebay 10y ago

Investors should be worryed more about Facebook's privacy issues and worldwide taxation problems. They hide they assets, just like google. Facebook, Not my choice. Too much privacy trust issues, fake news pushing and censorship business!