Facebook shareholders urge company to replace Mark Zuckerberg with ‘independent’ board chair

Facebook is being pressured by a group of shareholders seeking the removal of company chief executive Mark Zuckerberg from the board of the directors. A proposal has been put forward claiming that an independent chairperson would be better able to “oversee the executives of the company, improve corporate governance, and set a more accountable, pro-shareholder agenda.”

The idea for Zuckerberg’s board ousting comes from Facebook shareholders who are members of the consumer watchdog group SumOfUs. The organization bills itself as an online community that campaigns to hold corporations accountable on a variety of global issues such as climate change, workers’ rights, discrimination, human rights, corruption, and corporate power grab.

Facebook declined to comment on the proposal, but it’s likely to issue a statement when it files a proxy filing in April, as is per standard practice with shareholder proposals.

Lisa Lindsley, the capital markets advisor for SumOfUs, told VentureBeat that 333,000 people signed the petition requesting Facebook improve its corporate citizenship, but 1,500 were actual shareholders in the company. “The shares held by four individual SumOfUs members enabled us to file this proposal,” she said.

The proposal cites the new capital structure approved by Facebook last year as an example of where there was an imbalance of power. During the company’s shareholder meeting in June, participants were asked to vote on a proposal to issue Class C shares in a bid to keep Zuckerberg in control. Although approved, Facebook is dealing with litigation brought on by at least one shareholder who claimed it was an unfair deal.

Issuing the Class C shares was intended to help Zuckerberg continue his long-term vision and “encourage” him to remain involved with the company over the long term. The plan came after the Facebook CEO announced in 2015 that he and his wife, Dr. Priscilla Chan, would be giving away 99 percent of his family’s shares to various groups in a bid to promote child equality.

The proposal states that shareholder value will be enhanced with an independent board chair “who can provide a balance of power between the CEO and the board and support strong board leadership.” It goes on to assert that this individual would be “particularly constructive” at a time when Facebook “faces increasing criticism regarding its perceived role in the promotion of misleading news; censorship, hate speech and alleged inconsistencies in the application of Facebook’s community standards guidelines and content policies; targeting of ad views based on race; collaboration with law enforcement and other government agencies; and calls for public accountability regarding the human rights impacts of Facebook’s practices.”

Having someone be both the CEO and chairperson isn’t a unique situation for companies, as Tesla, Bank of America, the Walt Disney Company, IBM, Amazon, Netflix, and Salesforce all have one person sitting in both roles.

It’s doubtful that Facebook will acquiesce to the group’s demand, especially since Zuckerberg is one of the largest shareholders and could strike the proposal down easily, along with other allied investors. There are those who think having the founder in charge is a good thing for the company, especially as it pursues the goal of being first in virtual reality and video. Additionally, it’s not as if Facebook is in a precarious financial situation: Its stock continues to go up — its last earnings results surpassed what Wall Street analysts had expected, and the company appears in fine shape to compete against Snap after finally finding its groove in the ephemeral messaging space.

But what SumOfUs is probably worried about is the likelihood of Zuckerberg taking Facebook down a path he believes is right, but putting too much of the company behind it, which may result in damaging impact on shareholder value. Having an independent chairperson could stem that, according to the proposal.

Should Facebook implement this proposal, it would be an additional independent director joining Susan Desmond-Hellmann, Reed Hastings, Erskine Bowles, Marc Andreessen, and Peter Thiel on the board.

Lindsley acknowledges the uphill battle in getting the SumOfUs proposal approved when the company convenes its annual investor meeting: “This shareholder resolution, like most shareholder resolutions, is advisory in nature,” she said. “There could be a 99 percent vote in favor of it and the board would not be under legal obligation to implement it.  However, most competent board members realize that it is unwise to ignore the voice of the shareholders whose interests they are charged with representing.”