Aarti Maharaj, deputy editor
Mark Zuckerberg’s governance structure will allow him to maintain control of the company. Facebook sought to raise $5 billion in a hotly anticipated initial public offering (IPO), according to reports.
In the S1 document filed with the SEC yesterday, the company also released its financials. In 2011 the eight-year-old company’s revenue increased to 88 percent while its net income rose 65 percent to $1 billion, thus making Facebook extremely attractive to investors.
Since the company will be reporting to the SEC in April, it seems that many will be openly scrutinizing founder Zuckerberg’s every move. But when it comes to governance, this runs the gamut from ownership of Facebook to activist investors attempting to shake up the company’s boardroom.
According to Ronald Barusch of Dealpolitik, Zuckerberg seems to have a strong hold on the control of Facebook via two corporate techniques: dual classes of stock and voting agreements.
Barusch says shares of Facebook will be divided into two classes: Class A shares can be bought in the market with one vote per share, while Class B shares – which consist of previously issued and all shares owned by the 27-year-old billionaire Zuckerberg – will be granted 10 votes per share.
Zuckerberg owns only about 28 percent of those Class B shares, so it may seem that he has no control over the company. But he has voting agreements with many of his shareholders, and that gives him a proxy to vote with sufficient additional shares to grant him voting rights roughly equivalent to 57 percent of the super-voting stock. And that’s where Zuckerberg wins.
As for activist investors, Facebook seems prepared to fend off any hostile takeovers with preferred stock that can be used for poison pills to help the company buy more time.
Ideally, once Zuckerberg receives the majority of votes, this governance structure will allow him to maintain control of the company. Case in point: Zuckerberg will always have the upper hand in all transactions at Facebook, and his robust governance structure allows him to do so.