Facebook shareholder calls for change in share structure (FT.com; 6/7/16)

Facebook has shown a “blatant disregard for shareholders”, according to one investor, as it lobbies for the social network to move towards a one share, one vote structure.

Northstar Asset Management is encouraging other shareholders to vote for a proposal that would lead to holders of class B Facebook stock giving up their rights to 10 votes per share.

The proposal sees the asset manager trying to create a single class of shares just as Facebook is introducing a third class, to ensure Mark Zuckerberg, founder and chief executive, maintains control as long as he leads the company.

Julie Goodridge, president and chief executive of Northstar Asset Management, wrote in a letter that the company could make “serious mis-steps” if it does not adopt a system of equal voting rights for investors.

“The current share structure affords the shareholders who have provided the majority of capital since the company went public absolutely no consequential manner of communicating dissent with any decision Mr Zuckerberg chooses to make,” she wrote.

The New York-listed asset manager’s proposal, which comes ahead of the tech group’s annual meeting this month, cites studies which say companies with multi-class capital structures underperform.

Facebook did not respond to request for comment.

The social network proposed a new class of shares in April, class C, to allow Mr Zuckerberg to keep long-term control while he pursues a charitable giveaway.

Mr Zuckerberg’s voting control has fallen from about 67 per cent to 60 per cent in the past two years. He announced late last year that he plans to give away 99 per cent of his Facebook stock during his lifetime to causes including health, education and the environment. He has pledged to only sell up to $1bn of his Facebook stock a year for the next three years.

The class C stock would also give Facebook currency for acquisitions or to allot to employees without diluting Mr Zuckerberg’s control of the company. As Mr Zuckerberg maintains control, the measure seems likely to pass.

Ms Goodridge wrote that this new class of stock illustrates the company’s disregard for shareholders. “Non-insider shareholders already suffer with only one-tenth the voting power of insiders,” she said. “Facebook’s new non-voting share of stock will completely eliminate any semblance of opportunity for meaningful engagement with the company.”

Shares in Facebook, which have risen 43 per cent in the past year, fell slightly, down 0.8 per cent to $117.82 in morning trading in New York.

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