Facebook Board Seeks to Loosen Founder’s Control

Board proposes plan to ensure that Facebook will not remain a founder-controlled company

Entrepreneur, Mark Zuckerberg, who is the face of social media giant Facebook Inc. (NASDAQ: FB) among social network users and the world at large, acts as the Company’s founder and CEO. Recognized also for his bold business moves, Zuckerberg retains the majority shareholding and voting control through around 4 million Class A shares and 419 million Class B shares, representing 53.8% of outstanding voting power and 14.8% of total outstanding economic interests, as of June 2nd, 2016. In fact, to ensure that Zuckerberg remains at the helm of Facebook, the Company announced on April 27th, 2016, a new stock scheme that will create a new class of shares. Following this strategic step, it is indeed unimaginable to think that Zuckerberg would no longer remain in a leadership role at Facebook! However, the board has been giving thoughts to this aspect as well. Read on to know more about the board’s plans.

Source: Facebook
Source: Facebook

Facebook’s board has proposed removing Mark Zuckerberg’s majority voting control if he should decide to exit the company in the future. In a proxy filing with the U.S. Securities and Exchange Commission, Facebook’s board said it would seek a vote from shareholders on a proposal that would convert Zuckerberg’s Class B shares into Class A shares, if he quits the company. The move was first proposed in late April 2016 in a regulatory filing, ensuing Facebook Q1 FY16 results announcement.

While the board’s proposal may appear sudden, Facebook’s board members felt the need to plan for unforeseeable future events that might jeopardize the company’s growth. As part of those plans, the board would ensure that any future CEO of Facebook would not have limited management powers, if Zuckerberg were to quit the company and retain a controlling stake in the Company. The proposed move will be voted on at Facebook’s annual general meeting on June 20th, 2016, and will ensure that Facebook will not remain a founder-controlled company.

Currently, Zuckerberg is allowed to hold Class B shares and use majority voting control even if he exits the company. What’s more, Zuckerberg could pass his Class B shares and majority voting control to descendants after his demise.

The proposed plan, if Zuckerberg should exit Facebook, is to convert his Class B shares, which in the case of Facebook have more voting power, into Class A shares, which have less voting power. That is, Zuckerberg would keep his 14.8% economic stake in the company, while seeing his 53.8% voting power being reduced. Such a plan, the board believes, will be beneficial to Facebook’s growth, strategy, and stability in the future.

Going strong – Q1 FY16 Results

Facebook reported its Q1 FY16 financial results on April 27th, 2016. As part of its operational highlights, the Company reported that daily active users (DAUs) increased by 16% Y-o-Y to 1.09 billion on average, while mobile DAUs shot up 24% Y-o-Y to 989 million on average for March 2016. Another key usage criteria, monthly active users (MAUs), grew 15% Y-o-Y to 1.65 billion as of March 31st, 2016. Mobile MAUs grew 21% Y-o-Y to 1.51 billion as of March 31, 2016. Facebook still primarily relies on ads for the bulk of its revenues. Mobile advertising revenue, which accounted for approximately 82% of advertising revenue in Q1 FY16, shot up to 73% as compared to Q1 FY15.

Leaving other tech companies floundering, Facebook’s financials blew past expectations with a whopping 52% Y-o-Y growth in revenue to $5.38 billion. Profits shot up 195% Y-o-Y to $1.5 billion giving $0.77 earnings per share. Average revenue per user was up 32 percent Y-o-Y.

Facebook’s “family of apps” strategy seems to be working well in terms of user base growth. During the quarter under review, Facebook’s user base was at 1.65 billion, Messenger had 900 million users, and Instagram had 400 million users. Users spent an average of 50 minutes per day on these three apps.

Highlight of Earnings Presentation

The board of directors also approved a proposal to create a new class of non-voting capital stock, known as the Class C capital stock, which will allow the Company to remain focused on Zuckerberg’s long-term vision for Facebook.

With Facebook, Mark Zuckerberg not only built a company, but a rich corporate culture. Let’s hope that he remains at the helm long and steady as captain.

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