By Cheyenne Hunt-Majer
Approximately 92% of Meta’s shareholders signaled their displeasure with CEO and Board Chair Mark Zuckerberg at Meta’s annual shareholder meeting on May 25, but the shocking reality is that there will be zero accountability for him or anyone in the company’s leadership. It’s time for Congress to fix this with legislation that would revoke his absolute control over the company.
Zuckerberg, like many Big Tech CEOs, relies upon a dual class stock structure to avoid consequences for his mismanagement and misconduct. A dual class structure gives executives more voting power than ordinary shareholders, which they then use to insulate themselves from accountability and reform.
The way it typically works is that executives and insiders hold a special class of stocks giving them multiple votes per share (often 10), while public investors hold stocks with just one vote per share or no vote at all. This allows Big Tech executives skirt the principles of good corporate governance, letting them have their cake and sell it too.
Research has found that these dual class stock structures raise the risks of entrenched corporate directors, inflated executive compensation, poor corporate political spending choices, and lower returns for shareholders, among other hazards. Zuckerberg is the posterchild for this kind of dysfunction, mismanagement, and misconduct.
Zuckerberg has held on to his post through the Cambridge Analytica scandal, the use of Facebook by Russian operatives to interfere in the 2016 election, and whistleblower Frances Haugen’s 11 complaints to the U.S. Securities and Exchange Commission, which revealed that Meta’s platforms have promoted hate speech, fake news, anorexia, election manipulation, violence, child exploitation, white supremacy, vaccine misinformation, and much more.
Even after Meta’s stock fell 25% in February, resulting in a record market loss of $230 billion in a single day, Zuckerberg remained at the helm.
Zuckerberg avoids accountability through Meta’s dual class shares, which are designated as either Class A or Class B. It’s these Class B shares that allow him to dictate the outcome of shareholder votes.
Zuckerberg holds about 82% of the company’s Class B stock, giving him around 53% of the total voting power, despite owning only about 14% of all shares.
In a well governed company, the board chair is responsible for overseeing the CEO. But at Facebook, Zuckerberg is both CEO and board chair. Likewise, in a well governed company, the entire board oversees the CEO. But again, Zuckerberg controls the shares that elect the board.
In June 2019, 68% of Facebook’s outside shareholders voted to strip Zuckerberg of his role as chair. But Zuckerberg’s super-votes overrode that majority.
Shareholders also attempted to terminate the dual-class system by a vote of 83% of the regular investors. Again, the effort failed because the dual-class structure allowed Zuckerberg to overrule them.
At Meta’s most recent shareholder meeting, shareholders demonstrated their distain for the dual-class structure by an even larger majority, with approximately 92% of them voting to restore their equal voting rights.
While our government can assess fines for corporate misconduct, the $5 billion fine imposed on Facebook for the Cambridge Analytica scandal was too small to have a deterrent effect. The company made more than that amount in profit in just three months.
Without equitable voting rights, shareholders’ hands are tied, and they must bear the costs of executive misconduct without recourse.
The U.S. House Subcommittee on Investor Protection, Entrepreneurship and Capital Markets recently considered legislation to rectify this problem: the Free-Market Accountability Through Investor Rights (FAIR) Act. The bill would require large companies with a history of misconduct to give all their investor shares equal voting rights.
Specifically, this bill would target giant corporations with more than $75 billion in annual revenue that either (a) have been fined at least $5 billion in the past five years or (b) have been designated bad actors by a federal agency. Such companies would be required to eliminate any distinctions between share ownership and the voting power of shares within one year of the disqualifying act or fine.
The FAIR Act would level the playing field and finally allow shareholders to rein in the tech industry’s out-of-control executives. For Zuckerberg and other Big Tech power players continuing business as usual without their outsized voting power probably would cost them their influence, their salaries, and their positions at the most powerful companies in the world.
Many shareholders are understandably irate that they are paying the price for Zuckerberg’s misconduct, and a majority of them voted in favor of several shareholder resolutions to require greater transparency and accountability from the company’s leadership.
Public Citizen led the #MakeMarkListen Campaign in collaboration with a large coalition of groups to call attention to these resolutions and the outrageous reality that, without passage of dual class reform legislation like the FAIR Act, Zuckerberg will be able to continue to override shareholders’ attempts to hold him accountable.
Zuckerberg should not be allowed to continue managing a half-trillion-dollar global corporation with billions of users as his personal fiefdom. Congress needs to act now and pass the FAIR Act, so that Meta’s shareholders can take the necessary steps to rein him in.