Powerless investors vote overwhelmingly to oust Mark Zuckerberg as chairman
businessinsider.com
businessinsider.com
its called fiduciary responsibility
Similar to how people speculate that Brexit was only voted in because nobody thought the vote would pass- it was a protest vote.
To take your example, only people that oppose the result of the Brexit vote suggest that voters didn't really mean what they voted; it's just a way to apply favourable spin to an unfavourable outcome.
But that doesn’t matter after the vote.
The fascinating thing about Brexit was that the “people’s will” that was interpreted into the vote shifted its shape gradually over the months and years into whatever seemed to it the agenda that moment.
Democracy is fundamentally about consensus, and the longer a decision affects the future, the more consensus there should be.
In the Brexit process the most consens everybody could get was what 54%? And that 54% was gained on fraud and turned out to be split into fundamentally opposed directions.
There was never consensus in Brexit.
I agree that the "people's will" talk is quite silly. Democratic support is notoriously fickle and claiming to represent a single coherent national will is disingenuous; but so is trying to reinterpret a vote after the fact.
On matters such as these it is important not to let personal opinion cloud our perception. The brexit vote had a single question on the ballot and resulted in a clear majority (over a million vote difference). Both with this and the Facebook vote, we must be cautious before ascribing ulterior motives to voters.
I didn't imply consensus was strictly necessary for a decision. But if you have a legally non-binding vote, isn't it's purpose to show which option has the favour of the people rather than beeing interpreted as a legally binding majority. The bigger the majority and the higher the voter turnout the more you can speak of a consensus.
If you vote on something that might change the course of a whole nation over the next decades, a small lead with no real or realistic plan should not be basis for any decision. If you had a 51.9% vs 48.1% result when asking for the color of a bikeshed you wouldn't even call it a clear result then. You probably would argue on and vote again in order to avoid social conflicts. Especially when it turns out that one side used illegal methods in the runup to the bikeshed elections and all the people who use bikes are out on a bike tour for the last weeks weren't allowed to vote.
This is a silly example, but it explains precisely the mess the UK got itself into since the 2016 referendum. The majority was in fact so thin that demographic change alone (old people dying and young people becoming old enough to vote) would have swayed it in January of 2019¹. However if I were thrown into the debate without prior knowledge I would have asumed a majority of at least 75% for Leave based on the words of the prime minister alone.
> Democratic support is notoriously fickle and claiming to represent a single coherent national will is disingenuous; but so is trying to reinterpret a vote after the fact.
The basis of any democracy is a informed vote. The Brexit referendum can easily discribed as a misinformed vote: think about Cambridge Analytica², Russian Interference with the election³, the unlawful campaigning on the Leave side⁴ and the right out lies like the 350 million pounds that UK has to pay to the EU every week – a lie by the way, that forces Boris Johnson to court right now⁵.
English is not my first language, I have no ties to the UK and don't live there. I have no skin in the game and IMO they should be able to leave the EU if they please. But as someone who cares about democratic and humanist values, I also hate to see how undemocratic the whole process was. Essentially rich guys who own the tabloid media spreading lies about the EU for decades⁶ and then as soon as the vote is done they think loud about abolishing human rights⁷.
So in the beginning everybody voted for 350 million pounds on the side of a bus, and now they claim everybody voted for No-Deal all along. Ah and the money for the NHS... well it seems like they have just forgot they ever promised that.
The problem here was that there was no real majority for anything – they said "Leave means Leave" when in fact it meant at least 3 mutually exclusive things depending on which one you asked.
Imagine a cocktail party on a yacht. For some reason all passengers decide to vote whether they want to end the whole party. The leaving side has a majority because someone claimed you can stay on the yacht and be out of the yacht at the same time. But the ones that voted to leave are split in thre major plans:
1. those who want to go on land for a smoke and occasionally go back onto the yacht
2. those who want to go to a harbor and cancel the yacht trip
3. those who want to set the yacht on fire and crash it into an iceberg after throwing out the safety wests (but secretly keeping some for themselves).
Of course you can say they all essentially want to leave the yacht, but there is no consensus between the three and no way on earth to make them all happen at once, because they are incompatible with each other. This is how I perceived the Brexit leave side: there was never any coherent plan and literally nobody voted on the same idea. That is why claiming there was a plan and claiming it was clear to everybody all along is a lie and boils down to
> trying to reinterpret a vote after the fact
If this was a clear vote, UK would have been out a while ago. But it wasn't and acting as if it was will only divide the nation further.
¹: https://www.independent.co.uk/voices/final-say-remain-leave-...
²: https://en.wikipedia.org/wiki/Cambridge_Analytica#United_Kin...
³: https://en.wikipedia.org/wiki/Russian_interference_in_the_20...
⁴: https://en.wikipedia.org/wiki/Unlawful_campaigning_in_the_20...
⁵: https://www.theguardian.com/politics/2019/may/29/boris-johns...
⁶: https://www.nytimes.com/2017/05/02/world/europe/london-tablo...
⁷: https://www.independent.co.uk/news/uk/politics/theresa-may-h...
Also consider that people on all sides of large democratic votes have complex motives. It is just as likely that people who voted remain wished to "send a message", or were "tricked" by PR, or "didn't understand" the implications.
This is my point about trying to reinterpret the meaning of a vote after the fact; it is always tainted with the bias of the person doing the interpretation.
There were some very minor aspects where I could follow, but let’s not fool ourselves here: most people rationalized their feelings here. And the feeling was that the EU is somehow at fault for all things that went wrong within that austerity ridden nation and that only if they get rid of all that outside influence, the UK will become great again.
This is totally a position you can hold, and I can understand how one gets there — but it is not a rational one. In the 70s the UK were the poor man of Europe — Thatcher had a reason for wanting to join and the nation profited immensly in economic terms.
One could discuss whether some nostalgic values of britishness got lost (like every nation’s identity morphed into something else due to globalization), and how leaving the EU could be a start of the hermetic journey of restoring that identity. I don’t believe it can come back — if that is one’s reason to vote Leave, I understand it — but again one cannot claim it is rational. National Identites change constantly, and in a globalized world ever faster so. Befoming isolationist like North Korea could be some sort of solution, but the cost is a little bit high.
On the topic of the referendum my argument was:
- it wasn’t legally binding so it wasn’t meant to be taken as a winner-takes-it-all-vote
- because the public opinion on the issue was nearly halfway split, this meant there could be no extreme solution without splitting the nation socially
- therefore uttering extreme plans on both sides, as well as misrepresentations of some imaginary unified will of the people were simply unforgivable
- the result is a lack of consensus, that splits the nation
And this lack of consensus isn’t there because the one side misinterpreted the vote in the one and the other side into the other direction. This lack of consensus is there simply because there is no real consensus in the public and in the referendum result.
When 5 people in a pub want to leave while 5 other people want to stay, there is not a steong consensus about the further actions in this pub. 6 versus 4 would be much stronger already.
For Brexit, maybe. It was at least a mass vote with an uncertain outcome. But this was a vote which was literally guaranteed to fail - the one thing which can't explain it is the 'normal' pattern where people vote for a result to get that result. It's like watching Congress pass a bill that the President has promised to veto, knowing they can't override the veto. It has to be tactical voting, simply because it can't be anything else.
More concretely, there were two votes happening today - to oust Zuckerberg as chairman, and to end dual class stock. It was common knowledge that both were doomed, so all we can do is see what they suggested. 68% of outside investors supported the ouster, so we see a 17 point rise in the show of no-confidence from the same vote last year. Meanwhile 83% supported ending dual class stock, suggesting a 15-point spread of investors arguing they want more of a say, but are showing confidence in Zuckerberg's chairmanship. Questioning whether those 68% actually want Zuckerberg gone seems entirely fair, because taking the vote at face value would imply they're acting like King Canute, and didn't even understand what they were investing in.
I think the better headline here might have been "percentage of outside investors voting against Zuckerberg rises 17 points". You're exactly right - it's a show of no confidence, but hardly a guarantee that these voters actually want him removed.
Lots of securities laws, particularly those relating to corporate governance, rely on private enforcement. The lack of SEC action in no way clears Zuckerberg.
He just has more than 50% voting rights, which should never have been allowed, and should be one of the things that SEC should look at if/when any kind of antitrust probe is done. It leads to deviant behavior by public companies.
Edit:
Some people below are looking at it below from a purely investor standpoint.
I'm not an investor in FB and own no stocks.
I'm looking at the behavior of FB which IMHO is purely due to Zuck, him being unethical (as someone else has also called out below) and the fact that he has unchecked power in how he is running FB. Like in a Government, the Board is supposed to provide the checks and balances in a public company. Unfortunately, due to the voting structure the Board of FB is 100% impotent.
This administration seems to want to go after tech. If you’re a large Facebook investor, encourage them. You’re going to lose some value, but less than if you leave Mark in charge.
We're not Jedi.
If we want things to change, we have to change the actual laws. Expecting lawyers to find some violation under current law is fanciful in the extreme.
There's always the option of putting your money where your mouth is. If you're saying a dual class structure is bad, and not in the interest of shareholders or companies? I mean, well, you should be willing to put your money behind that assertion. It should be to your benefit because the implication is that not investing in companies with dual class structures should be more profitable over time.
That said, these voters should try to change the SEC guidelines, no use hating the player, change the game.
I mean, did people not read the prospectus? What, exactly, did they think "dual class" meant? These people should consider divesting, because I'm not certain that they studied their investment target closely enough to wargame out different possible outcomes prior to throwing money at FB.
This vote was proposed by Trillium Asset Management, an activist investment group. They hold $7M of Facebook stock, and the group they lead to bring the ouster vote appear to control around $3B. These are people who knew what they were investing in, and decided to bring this vote to put pressure on Facebook, not in a deluded hope that it would pass. What's more, a bunch of the outside investors seem to want more leverage without wanting Zuckerberg out - there's a 15-point gap between "voted for a new chair" and "voted to end dual class stock".
More broadly, this is just a round of the kind of corporate advertising via news that PG called the 'submarine' (http://www.paulgraham.com/submarine.html). Trillium called a vote that couldn't pass, and was on hand to provide a pithy closing quote to Business Insider's reporter. BoingBoing is running the story with a narrative of fighting the evil tech billionaires, never mind that Doctorow normally hates the idea of companies "disciplined by shareholder choices". Meanwhile, Trillium's website posted the story "Trillium's Ongoing Pressure on Facebook Governance in the News" - this is a conscious and apparently quite effective effort to create a "Zuckerberg ignores his shareholders" narrative.
My point is that the prospectus "...is a conscious and apparently quite effective effort to create a 'Zuckerberg ignores his shareholders' narrative..."
It's quite literally, publicly stated company policy in this regard.
Everyone who bought in knew, or should have known, that Zuckerberg had the power to ignore their votes. But in principle, that could have been limited to fending off raiders, mergers, or other harmful initiatives. By repeatedly demanding an executive chair to provide oversight, Trillium stresses the idea that Zuckerberg is using his majority vote to defend irresponsible leadership.
Will anything actually come of it? Probably not, but if FTC or SEC pressure amounts to something real it might position them better to gain influence over the company.
About the only thing this fuss does is manipulate Facebook's share price.
Of course, everyone wants a bigger piece of the pie, so they can try to bring even more political pressure on Zuck.
From my experience, having majority shareholders don't lead to "deviant behavior" any more than companies with no majority shareholder. In fact, one could argue that many of the ugly collective action problems facing the world today stem from organizations in which nobody has the power to veto unethical policies.
I think the problem here is that Zuck can veto. I think it's that Zuck is unethical.
You can take financial resources of the public or you can have veto power. If you have both, you’re not a “Public Company” anymore and your stocks should be immediately delisted from public markets.
Given the fact that what happens appears to be us going after tech firms under current law, I wouldn't hold out much hope for needed changes in the legal environment. For some reason, (money), people just don't want to do that.
Arguably, they are the ones most affected with the most to lose. A salaried employee with no stock options likely depends more on their continued paycheck and the continued success of the company than any large shareholder or even the class of employees who hold stock.
Their vote should count MORE than the board.
I understand why this isn't practicable. Those who have large investments have a large incentive to educate themselves on how the market works and how corporate governance will impact overall success for the company.
Sometimes hard and unpopular decisions are necessary in order to keep the company profitable.
I do, however, see real value in having input from a sector that's focused more on long term success than short term profits.
The question is, how well can you sell it and whether the conditions are otherwise acceptable.
Your landlord, most of the time (i.e. when they're not repairing or maintaining their properties), is not trading money for time; they are charging you for access to materials which, moment to moment, costs them nothing.
Patent trolls make money without trading away their time -- you work to pay for access to an idea, which costs them nothing to maintain.
One could go on and on with examples of widespread rent-seeking fields of work and industry; but in general, no, it isn't literally everyone who trades time for money.
The media, of course, isn't owned by workers, and so rampant character assassination is par for the course for anybody who moots ideas like this ("czech spy", "arch brexiteer", "anti-semite", "terrorist sympathizer", etc.).
I agree with others. It was well known that Facebook was exclusively controlled by zuck when it went public, and that wouldn’t change. I think the only recourse is to lobby the sec to prevent it from happening in future IPOs.
And that what matters in this case. The knew what they're buying, it was a huge debate about it in the media too. All was legal and was disclosed. Personally I would not buy stock in a company structured this way, but if I did, I would not have a right to complain.
It is the expectation of action missing.
the worth of shares in the hands of the investors is highly dependent on Zuckerberg being at the helm & maintaining Facebook on the course.
If they ousted Zuckerberg, or curtailed his power to make decisions, the shares' worth would enter a slow, but inevitably terminal, decline.
Side note, I disagree with, and condemn Facebook's certain practices. The above post is only to indicate the company as a whole is a highly efficient money making machine.
I’d say that for all practical purposes he controls it (but not owns).
Good thing too. Facebook wouldn’t be the same without Zuck.
S&P refuses to add companies with dual-class stock to the S&P 500 or other benchmarks they control (Facebook was grandfathered in).
But I try to invest my 401(k) according to what I understand of academic research, and they never mention the importance of avoiding dual-class stock ( https://web.stanford.edu/~wfsharpe/art/active/active.htm ). I understand that some people have personal crusades about this or other questions of corporate governance; but those are their crusades, not mine, and they aren’t responsible for my financial well-being.
I haven’t seen this be true any more than public companies where stocks are directly equal to voting rights. Why would it be any different?
It is a public company in label only. This is a psuedo-public company as long as a single individual owns/controls the company.
Kalanick also had a voting supermajority. Granted, Uber was unprofitable while Facebook is anything but.
But if the fines and investigations and antitrust actions steam along, and shareholder lawsuits pile up, Zuckerberg’s position of strength could change.
TL; DR This was a showboat vote. Not only did it have zero chance of passing, it’s also not binding. But few leaders survive a consistently-antagonistic independent minority.
No, but it would be a very good idea. Facebook insiders repeatedly have stressed that Zuck isn't a very good CEO, and that he really is much more fit for a CPO type role. That he apparently refuses to listen only reinforces the validity of this feedback in my mind.
What if Zuckerberg declares a new mandate for Facebook; something legal but manifestly harmful to the company. Say he decides, "let's shut down ALL advertising and sell ALL of our work computers for a penny and make everyone take turns doing their job on a single PDP-8 located in Siberia." Is there any recourse for all the investors/stockholders other than scrambling to sell ASAP?
Or put another way, is Zuckerberg legally allowed to run the company into the ground if he felt like it?
It depends on how he runs the company into the ground, and his state of mind while doing it.
A CEO has a fiduciary duty to the shareholders - The CEO is supposed to act in a way he believes benefits the shareholders.
They also have duties of Care -
They must evaluate business decisions and agreements after taking into consideration information and input from shareholders/board/experts/employees etc
Loyalty -
They must act in the interests of the company and it's shareholders, putting this above decisions about their personal finances or outcome
and Disclosure -
They must inform the board and shareholders about challenges facing the company, or issues the company is having.
----------
That said... There's serious protection for the CEO in the "Business judgement rule" which says that as long as the CEO Fulfilled the above duties and acted openly and honestly - He's protected from any liability if the company loses money based on decisions he makes.
So if Zuckerberg stated: "I will kill Facebook by intentionally making terrible decisions" then no - he's not allowed to do that at all, and will likely face many shareholder lawsuits.
To the shareholders or to the majority of the shareholders? If the latter, he can literally do whatever he wants (as he's the majority shareholder).
The metric to apply here is a moral one, and that's the one where Zuckerberg both fails to justify himself and fails to rise to minimum expectations of duty and obligation. It's also the metric that most people are applying in this situation.
Shareholders have nothing to complain about, the structure was known when they bought in. If they are not happy, they can sell to people who trust the man more.
Maybe, but this is a horrible example, since the weighted voting rights things was a well-publicized practice in tech startups for just the purpose FB adopted it well before FB did it, not some clever Zuckerberg innovation based on observation of others’ failures. See, e.g., Google.
In 1985, Jobs apparently owned 15% of the total Apple stock. Wozniak presumably started out with the same share as Jobs, and the early 'garage' team was cut in from his holdings. Markkula became a 1/3 owner as the first investor and third employee, and was likely brought down to 15% as well during the 1980 IPO. The board apparently voted against Jobs unanimously - not to fire him, but to strip him of his management role.
So I definitely don't think it makes sense to claim Zuckerberg 'learned' from this. First, Jobs was never a majority shareholder, simply because there were three founders. Markkula voted against him and Wozniak had already sold many of his shares; this is like Page and Schmidt voting to oust Brin. And beyond that, you're exactly right; Apple went public fast as a consumer-electronics business looking to raise money, while the retained-control 'tech company' model was well-established before Zuckerberg could plausibly have IPOd.
I’m not saying this is particularly innovative, of course. What is remarkable is his ruthlessness to apply it shamelessly and at huge scale.
I'm not aware of any global trackers that avoid dual class shares like this, and I can't very well sell the Facebook bit (I guess I own some somewhere).
I'm from the UK where elections are generally First past the post. In theory I can vote for whoever I want, in practice there are 2 parties who have a chance of winning so half the time I end up voting to keep the other one out. Its a democratic election, but I didn't really have a choice.
That's 2 counter examples to your reasoning.
It's like unfair contract terms. Ideally there would be no such thing, a contract is entered into freely by 2 parties, nothing should be unfair. In practise you need that protection.
Not Facebook's problem at all.
>elections
Not applicable, the choice to not buy a stock is much easier to make than the choice to leave a country because of the voting procedures.
I didn't say it was.
What's the easyness threshold where it becomes applicable?
I'm sure theres a fair few pension holders that would find it very difficult to avoid Facebook.
If you don't know any, you can short it.
Yes my financial exposure would be zero, but I would still be an owner.
I'm also (probably) an owner of facebook, despite having absolutely no say how it is run, as would be traditional as an owner.
Philosophical discussion aside, it isn't just Facebook that does this, so there would quite a few different stocks to track, which kind of undermines the 'stick it in a tracker' idea.
The mistake is compounded by the fact that he thinks that he knows better than those who vote overwhelmingly against him. Facebook needs a new tack, and he is stubbornly maintaining course.
Amazon was a bookstore until it expanded into web services of all things. I remember what an eye opener the success of AWS was too everyone on the outside.
Google was a search/ad company and yet that hasn’t precluded them from trying any sector to see if something sticks. With the move to walled garden apps which exclude Google from indexing them Google’s share price would’ve tanked if not for Android.
Netflix went from shipping DVDs to building a video distribution service and then a studio production arm. Big moves.
My point is these companies aren’t afraid to think outside the box. Facebook can do that. But they don’t. They seem comfortable buying other companies instead. What a Facebook pivot would look like I have no idea. Buying Instagram and WhatsApp were strong moves but Facebook itself isn’t making a lot of bet the farm type moves itself - at least not the way in which the other big tech companies are doing.
The fact that they ceded both to Microsoft boggles the mind.
Facebook looks a lot like Microsoft of the 90s, obsessing over stagnant or slow growing business lines to the exclusion of new opportunities.
Whereas Amazon, Google, and Apple (to some degree) seem to realize it's expand or become irrelevant.
You can build a world-scale business on one great idea, but every idea isn't great. And a lot of successful companies forget they got a lucky roll on their first idea (by definition). Shotgunning and pruning >> all-in.
There's so much potential in FB or was till very recently (Open Compute and React to name two very impressive projects) - I imagine employee retention can only have become harder as the privacy scandals have hit and the share price gains have slowed.
Facebook, as mentioned in parent comments, has essentially tapped out casual social networking as a growth driver.
But casual (e.g. your mom and uncle) is the key there. There are many other kinds of social networking: not as large, but large enough to be worth even Facebook's time.
Developer networking is absolutely a large and valuable demographic. Facebook has demonstrated competency is compiling and making social graphs useful.
Ergo, buying GitHub would allow Facebook to move into a new market while offering new features that GitHub couldn't build on their own.
(Note: I'm charting out an "If Facebook decided not to be stupid and just slap ads on GitHub" business case here)
What does Microsoft of 2019 look like? (Don't take it wrong. I just wonder how people think about these things, or what analogies are in common use.)
Specifically, recognizing that for large, mature businesses, growth has to be driven by new product types that customers are demanding.
And that at that scale nothing starts off "big", but by observing metrics, demand, and properly incubating and then funding launches of internal projects, small popular services can indeed become huge revenue drivers.
The main asset that facebook has is data. I've been reading "21 Lessons for the 21st Century", and I agree with Dr. Harari's argument that we need a regulatory environment for data, and the way that the cultural/political swing is going, all it takes is one election to completely upend the value that facebook holds. I would go one step further and argue that actions that the US has taken in regards to China and Europe endanger facebook in areas where they will most want to be in the coming years.
What will Zuck need to do to survive and thrive in that? I don't know and I have a strong feeling that he doesn't either, but I'm guessing that he has some investors that do.
The problem is that they often have to take additional VC to keep growing and HAVE to give up control or the company dies.
If you need cash to reach escape velocity there's not much you can do
If only there would be a way to ditch a company like this their problems could be solved. A place where you could sell your stake in the company (preferably on a global scale) and buy a stake in a company which doesn't suffer from such issues. Something like a marketplace but for stocks.
¯\_(ツ)_/¯
System works, apparently.
And this is distinguishable from the last 5 (+?) years of Zuck how?
Scariest of all is that people like you don’t even seem to care. It’s totally OK to violate privacy, permit foreign actors to undermine elections, as long you make a ton of money.
Btw: friends don’t let friends do Facebook.
Everything else is possible, although not using youtube can be pretty detrimental, depending on how you use it.
Let's look at Cambridge Analytica?
• Not proven anything they did actually affected anything. The assumption it did relies on a lot of controversial beliefs about human nature.
• Data was obtained through a middleman who violated his own agreements with Facebook - an academic who has mysteriously not been held to account for this behaviour. Somehow it's all Facebook's fault.
• They restricted data access to apps anyway. Not much more they can do beyond terminate all API access to Facebook data, which would just get them in trouble of a different kind.
There's nothing more Facebook can do here. Zuck's biggest mistake was not to go in all guns blazing in defence of the company and adopt a head-hanging mea culpa type attitude, which allowed his political enemies to frame it as a scandal when it simply wasn't.
Likewise, "election interference". It's all nonsense. A few hundred thousand spent on ads for both parties by Russians? A whole lot of innuendo and lies from the press? Indeed the entire assumption that Russians = Russia = the Kremlin is absurd to begin with. Zuck should have very forcefully and bombastically slapped down this kind of talk. He failed to face down the anti-Trump mob and now the mob failed again to get Trump impeached, they're coming for him instead.
Most smaller investors wish for long term growth while being spooked by bad short term and charmed by short term growth. Most don't engage in voting and may not even have control of their vote but their broker.
Perhaps some of it is from fundamentally wrong assumptions about division of management and incentives. Especially given multiple ownership is possible the assumption shareholders care about the long term health doesn't actually hold. Voting system may be influenced by older school thinking that it was more like a country or smaller scale venture.
It is entirely possible for a large vote holder to push for short term policies and get out on top - and it wouldn't even be misconduct let alone something enforceable.
I wonder what a better system could look like - and how better would be defineable for that matter. With another layer in "how could it be introduced?". Since if it is just a matter of starting your own and proving it works better that hard task is ironically easy compared to say changing FTC rules.
It seems that Zuckerberg has already achieved this however by retaining voting rights. That hasn't stopped investors from pouring money in to FB.
Why would any founder then decide to list on LTSE rather then just implement a dual class structure? Perhaps if market conditions were to change, but right now there appears to be no shortage of investor cash looking for a home.
Zuk has a strong incentive to listen to his shareholders even if he doesn't have to. If he ignores them, shareholders are likely to sell their shares driving the price down. This (1) reduces Zuk's overall wealth since much of it is locked up in Facebook equity, (2) reduces the total compensation of many Facebook employees who receive options or RSUs thereby making retention harder, (3) makes recruiting engineering talent harder because few people want to join a sinking ship, and (4) reduces the ability of the company to raise capital in public markets (unlikely a significant consequence for Facebook as they throw off a lot of operating cashflow)
So yes, Zuk voted to not fire himself. That doesn't mean he can ignore his shareholders without consequence.
Direct Democracy ?
Since public corporations are entirely a legal entity (nothing "natural" about them), and so heavily regulated in so many ways to protect investors...
...what is the rationale the US has for even allowing the concept of shares that have less/more votes? It changes the ideas of shares as ownership to more of a kind of financial gambling.
And creates problems like this one, where a majority of ownership thinks a CEO is performly badly but can't do anything about.
I know investors bought shares voluntarily and knew this in advance... but I still don't understand why it's even a choice investors are allowed to be given. How are unequal voting shares good for society in any way at all? It just seems to allow corporations to get the benefits of raising cash publicly without the public accountability that should come with it.
But Facebook stock? Literally a bet on Zuck.
What is the chance Zuck is living in a simular bubble?
[0] https://www.newyorker.com/magazine/2018/09/17/can-mark-zucke...
Regardless of what happens with Zuckerberg, Facebook's best days are behind it. The notion that a change in leadership can right this sinking ship makes no sense.
Yet they fail to put their money
where their votes are by simply
selling Facebook shares.
Zuckerberg has iron-clad control of FB.
He could unilaterally decide that quarterly profits, hell, any profits, do not matter and there is nothing anyone could do.
Keep that in mind when it's discussed that FB can't really do anything about the problems it has spawned because it is part of the financial system and governed by Wall Street.
No, it is governed by Mark Zuckerberg and he can do whatever he wants. Every last dark pattern and shady thing they are pushing for with engagement, ultimately, he and he alone is is responsible for and condones.
Every other CEO on the planet has the "but the quarterly earnings" boogeyman to fall back on as a scapegoat for their malfeasance. Zuckerberg, due to his shrewd engineering of stock classes, does not and we should do well to remember that.
This is absolutely 100% FALSE. Every single person who works on those dark and shady patterns are responsible for their actions. They choose to work for evil every single day because the money is more important to them.
Why do we give tech employees a moral and ethical pass for the terrible things they do just because they work for a company?
These engineers don't work with blinders on, they know that every line they commit is ultimately in service of getting more people addicted, and more clicks on facebook ads.
Someone above them may tell them to write that code, but they choose to write each line when they could be working somewhere else. Last I heard, facebook hires supposedly intelligent people, I daresay they'd be able to to get a job elsewhere.
They choose not to.
I wrote my original post off the cuff. I might edit it to say that Zuckerberg, as the CEO, sets the tone, and hires the people who build the system and set the culture that either incentivizes/allows/demands these practices (dark patterns, etc.).
Individual engineers can take a stand, but without their managers, and those managers' managers backing them, it's a Sissyphean task.
The point being, Zuckerberg is ultimately responsible.
Yes, the responsibility is ULTIMATELY on zuck, but for it to reach him, every single person in line has to shrug their shoulders and do the wrong thing because it's more profitable to do so.
In that sense, I agree with your push back. However, I lament that we've given tech employees this kind of morality and ethics-free environment to play in.
I'm a big fan of systems thinking. My friends get on me for it, but I wholly believe "if you aren't thinking about the system, you aren't thinking" or some aphorism to that effect. Donella Meadows, Russell Ackoff, W. Edwards Deming all inform my thoughts on this.
When an individual contributor like you are mentioning above is in a system there are four options they can take when they see something off. 1) Do nothing 2) Distort the system (often seen as a band-aid fix) 3) Distort the data (when Alan Mulally took over Ford all of their dashboards were "green" which meant good while the company was slated to lose billions of dollars that quarter) 4) Change the system
From Deming I learned this: who is responsible for the system? Management. Who is the top manager at FB? Mark Zuckerberg. So that's my perspective on using the word "ultimately." I also noticed that with your wording "...but for it to reach him" gives the sense that these behaviors are percolating from the bottom up. My sense, is looking at it from the other perspective--Zuckerberg down. He has set the tone, built the system, and the culture that allows (demands?) this behavior.
Another Deming quote that I have seen all too viscerally in my 17 years in the professional world is this "A bad system beats a good person every time."
I don't excuse unethical or illegal behavior of ICs or managers, but I can look at the system they are a part of and understand it.
I don't disagree with anything you've said, except that I add one more option to the IC's list: 5) Leave the system: quit and work somewhere else.
IMO quitting in a huff over issues like this causes damage to one's career that one really ought to avoid. I left my previous gig over cultural issues and I nearly got labeled a job hopper for doing so. I'd suggest taking the long view and let's see what happens with all the tech companies that are now doing morally questionable things.
It feels like there's been a phase transition in mood in the valley in the past 2 years.
"A loss of X dollars is always the responsibility of an executive whose financial responsibility exceeds X dollars." - Gerald Weinberg's 'First Principle of Financial Management' and 'Second Rule of Failure Prevention' [1]
By this model, I'd say engineers have some responsibility, but managers and, especially, executives shoulder the primary responsibility. By the same model, engineer's choices also have to be mediated by their own responsibilities to pay the bills, take care of their families, and so on.
[0] An Introduction to General Systems Thinking, Weinberg
[1] 'First-Order Measurement', Quality Software Management, Volume 2, Gerald Weinberg, Dorset House Publishing, 1993
Thanks for bringing him to light. I was completely ignorant of him before your comment and look forward to looking into the sources you graciously added to the discussion.
Edit: Went to add the books you cited to my Goodreads list and lo and behold, the first one was already there. I am not going to live long enough to read all of the books I want to!
The day that thought first came to me was a dark day! Another of Weinberg's heuristics [0]: Read books only after three people have recommended them. It's a quality filter, tuned to the kind of people you associate with, and to reducing the number of pages you'll have to digest.
[0] From a message on the SHAPE (Software as a Human Activity Practiced Effectively) online forum, which may be long gone.
that's quite an extreme view. Have you ever considered you might be mistaken?
It's been years since I've even seen a pro-facebook take on HN, let alone anywhere else.
Most people echo something similar to "I don't like it, but everyone else is there, and I don't want to feel left out."
Either way in support of what you’re saying and in reference to the words — what evidence or rational is there that most people psychologically addicted to FB think it is evil? Replace FB overall with IG. IG is hugely popular. Some are prob addicted. IG doesn’t have the same negativity assigned to it so saying most addicted users think it’s evil would seem like a very silly statement.
Edit: this is not to argue that FB is an addiction or that FB is evil or that FB is equivalent to cocaine. It is just to point out the weakness of the parent comment.
FB employees: pretty close to Purdue pharma and the tobacco companies. At least tobacco prevents Parkinsons. I know, people got kids to feed and ex-wives to pay off, but FB is complete and utter garbage, and anyone who ever worked there carries a badge of shame forever.
I highly doubt most addicted users think FB is evil. That’s a strong word.
Regardless, people being pro some company is not a good way at all to see if a company is “evil” or not. Many times people being pro something can be a negatives indicator.
We have seen various tech companies do bad things. Like the anti-poaching collusion so many participated in. But at that time Google was given near unanimous praise and pro-comments.
'let alone' anywhere else? HN is surely skewed toward privacy-conscious types that are inherently not 'pro-Facebook.'
Do you want to try to make a case for Facebook being good or even benign, or did you just want to check in if we're conducting regular introspection?
(And, off the top of my head, the things Facebook does that nudge it into "evil": persuading media to move to video by lying about viewership statistics, gaming the algorithms to maximize engagement in the style of a Skinner box, in at least one case intentionally trying to depress people through feed manipulation, turning a blind eye to electoral interference, all the dark patterns surrounding getting people's personal information, the shady ways they share that information, and if I sat here and literally thought about it instead of producing a list as I typed it out, I'd come up with more. This is not what a good or benign corporation does. Doing these things is not compatible with being good or benign.)
It's pretty bad when even a significant portion of your user base only uses your product begrudgingly and with resentment.
That describes a _lot_ of companies and organizations (probably the majority of all organizations, I would guess?) most of which I would not consider evil. The DMV, for example. I would agree with calling them 'pretty bad', but pretty bad isn't the same as evil.
The shareholder system of control foists massive negative externalities on the public while concentrating profits in the hands of a few.
It's like advertising toxic waste disposal for $100 a tonne, then dumping the carcinogenic sludge in the town square while keeping the cash for yourself.
If you're a real capitalist, you peel off 1% of your windfall to support politicians who sabotage any attempt at regulating toxic waste disposal.
Is it possible that this "every FB engineer is a moral criminal" stance is actually a fringe view espoused by a radical minority and not a principle we should consider seriously? I think so. I reject the OP's claim to moral authority.
A thing isn't bad just because some random commentator on HN says it's bad. The law is how we encode legitimate and society-wide consensus on what's bad. I am under an obligation to follow the law. I am under no obligation to behave according to what some random HN commentator wants to ban this week.
So making guns is okay, supplying them randomly is illegal at most places because they just do harm.
Similarly there at these companies the engineers working to maintain the infra making it all possible.
Engineers need to understand where their work is getting put at.
Governments are trying to control it. Sri Lanka recently disabled all Facebook properties at the ISP level after Facebook promised to clean up incitements to violence but then either wouldn't or couldn't.
Just because a thing is legal doesn't make it moral or ethical. And a big reason why bad things remain legal is because bad things tend to shit cash.
I suppose you're free to do anything that doesn't get you arrested. The rest of us try to live to a somewhat higher standard.
The development process at a company the size of FB is so fragmented that the number of people who actually have a full view of the sum ethics of the platform generally reside at the Director level or higher.
Does the engineer who maintains the code for tagging photos with facial recognition know anything about what happens to that data after? Does the person who works on content filtering algorithms know what language rules another person is going to put into them? Does the person working on optimizing databases know who's been given carte blanche access to that data via APIs?
To use an extreme comparison, there's a reason the entire German army wasn't hung at Nuremberg.
And in the case of working at facebook, will most definitely be used.
Facebook employees have vastly more options to leave a company that they reasonably know or should know is morally questionable, and quite likely to be able to find other employment.
That changes the measures of culpability (or at least compliance) significantly.
That only changes the costs of the options, not the fact that you are either complicit or choose to leave.
Specific to your specifics, if changing circumstances _in_ the Valley is so hard, leave the Valley as well. I live in the Midwest, so my perspective has it's own skew, but SV sounds more and more like a crazy place to even try to live.
There are schools and jobs waiting in Georgia and Texas and Wyoming. They aren't Valley jobs. But they offer comfortable lives.
I appreciate the honesty of the parent post. It's all about the money and lifestyle. The part that makes me blink is that they think this somehow alters the ethics in a positive way.
If I had a job, for example, maintaining photo storage at FB, should I be so ethically outraged that I should upend my whole life, and my family's life, to run away as quickly as possible?
If you want to argue that it is hard to quit FB because of money and schools, and that that changes the ethics, see my comment above.
1. I'm not arguing that every job at FB is ethical, I'm arguing that most aren't so unethical that one would permanently taint one's soul by staying there. This is especially so if you consider that FB has a chance to change, no matter how slim that chance is. Perhaps these people believe in the stated mission of FB and think they can help.
2. It's not at all easy to leave a job - not every engineer is a 20-something nomad with no kids. Finding a gig that matches a AAA, SV company in sum benefits is a hard task on its own, even if you're not geographically limited due to familial sentiment or obligations.
EDIT: or even how many pay attention to tech news in the mainstream media, for that matter.
I've seen some internal memos with zuck reassuring the employees how much he cares, those memos aren't written in a vacuum, they are responses to things going on. Are you suggesting that Facebook employees don't read the internal memos sent to them or lack any critical thinking on why they are sent?
thats the actual reason why soldiers were spared in Nürnberg: because a lot of the army didn't actually have a choice. It was death or collaboration for them.
My historical knowledge of this isn't as detailed as I would hope to have; do you have some suggestions - links, books, etc in regards to the details on the sentencing?
I can certainly understand that the higher up the chain you went, the more knowledge of the atrocities you would (or should reasonably) have, but was there a particular "breaking point" where "below this point nobody is charged or even censored"?
If so - how was that point decided? What if you were just an everyday Joe-in-the-trenches soldier who was on the front lines, but knew you had neighbors and friends that just "disappeared" and you had doubts or other misgivings?
Or what if you were a younger person, and had "snuck around" and seen something strange with the "hidden camps" in the countryside - but then became a soldier a few years on, and those sights as a kid haunted you?
Where's the ethical line?
If you had a very good and reasonable suspicion that what you were participating in, had actually much more grave consequences for neighbors and fellow citizens - even if you didn't agree with their views politically or morally (let's suppose) - would it be better to avoid being a conscripted soldier and dying, than to participate in what may turn out to be a brutal atrocity on the world stage?
I can see the conundrum - that you wouldn't know for sure what the truth was, and since you don't really know for certain, then "fighting for your country" - even if forced - was better than your country killing you (in some manner) because you didn't.
But I bet there were more than a few who did say "no" - and I wonder how many of them made it through the camps or other "work detail" where they quickly learned either some horrifying details from other prisoners, overheard conversations of guards, or just what they considered very frightening rumor (that ultimately turned out true)?
Those that survived - if any - I wonder if there have been discussions between them and those who joined though they may have had misgivings or doubts?
When you start to question and think about this - you begin to see why things are the way they are in Germany today; at the same time, you also wonder how is it that there is still - kinda in the shadows, kinda not - a level of "nationalism" and (possibly?) "German purity" movement in both Germany, and Europe (and the larger world stage).
A certain amount of it has to do with propaganda, conspiracy, and the like of course - but what else is driving all of this? Are we (humanity) doomed to repeat this kind of atrocity again and again (that is - genocide and such on a mass scale; while what happened during WW2 was perhaps (?) one of the largest examples in history, it is also - unfortunately - not a unique thing in humanity's history)?
I'm also aware of other history that can help explain some of this (that is, the targeting of the Jews - among other groups) - and it potentially goes back millenia, which is both sobering and depressing to realize that we're barely budging the status quo over the years...
So there you have it in a nutshell straight from the horse's mouth, as it were.
There are reasonable arguments for hanging the whole German Army after the war starting with dissuading monstrous wars of aggression with the idea that if we lose we'll all die.
An interesting alt-history fiction could be written where that was the case, I bet...
As the person with sole absolute authority over Facebook, he is 100% responsible for everything that happens, in addition to whatever responsibility the people under him bear
I'm thinking in terms of a RACI matrix.
BTW, I had to look up RACI matrix as I've only ever heard of it. Is this a popular project tool at the moment? Do you use it?
In case of Facebook even this doesn’t apply. Facebook’s earnings are steady/growing [1]
[1] https://www.cnbc.com/2019/04/24/facebook-earnings-q1-2019.ht...
He owns less than 50% of the company but he controls more than 50% of the voting shares.
Let's say FB starts losing money or spending it on really useless stuff, sure the secondary stock price could tank, but that might not matter to MZ at some point.
That’s not entirely accurate, see Henry Ford suspending shareholder dividends, raising employee wages and lowering price of cars for consumers to fulfill vision of every American family owning a (Ford) car.
Shareholders sued and won because Ford owed and violated his duty to shareholders.
Since that time the Law has evolved to extend director/officer protections - even allowing officers to raid corporate funds to ensure directors re-elect the officers - but The voting rights don’t relieve Zuck of his duties to other shareholders in his capacity as director and/or officer.
It wasn't to fulfill any kind of dream or vision. Ford didn't like his shareholders, quality was getting hammered by high turnover and he had a weird paternalistic desire to exert more control over his employees (as well as to head off the looming strike threat).
Specifically, he found out the Dodge brothers were planning to use their gains from Ford stock to start a competitor.
I didn't know about this case so I read about it. It doesn't tell the whole story.
"In the 1950s and 1960s, states rejected Dodge repeatedly, in cases including AP Smith Manufacturing Co v. Barlow or Shlensky v. Wrigley. The general legal position today is that the business judgment that directors may exercise is expansive. Management decisions will not be challenged where one can point to any rational link to benefiting the corporation as a whole. "
Does Facebook's board of director's have any power over Zuckerberg?
I've also floated the notion that if one started putting Zuckerberg deepfake videos on Facebook, I think the thin-skinned tyrant (I mean this is the guy who supposedly threatened employees with a samurai sword in the early days) would suddenly do an about-face about promoting such content.
Very few Facebook shareholders bought the stock from Facebook, and virtually none would sell the stock to Facebook. They buy and sell from other investors. It doesn’t matter how much stock I personally have, if I were to sell all of it, it wouldn’t take any money out of Facebook’s bank account.
If I sold enough stock to actually affect the price, other investors would buy it at the lower price and bid it back up. Not only would my action have no effect on Facebook, at most I would help other people get the stock at a better price.
If you don’t want to own Facebook stock, by all means get rid of it. But don’t expect that to cost Zuckerberg any sleep.
I have been at multiple big tech companies when the stock dropped 20% or more. These events trigger a flurry of media coverage by analysts declaring that said big tech company's reign is over and soon everything will turn to crap (which it doesn't).
But this causes immediate concern among the employees because this directly affects their annual RSU compensation and it causes concern in the leadership because it makes them look bad and they tend to be the sorts that need to look good.
IMO don't underestimate what coordinated dumping of Facebook stock could achieve here. It does seem like a bit of a prisoner's dilemma though. After the initial price drop, the stock will recover because Facebook isn't going away anytime soon. So from a pure greed standpoint, don't sell. But that's not what this is about, is it?
The question I was responding to was “if [investors] dumped all their Facebook stock I wonder how that would affect Zuck?” Whether there are other reasons to sell (I even said “If you don’t want to own Facebook stock, by all means get rid of it”) is beside the point: how does selling affect Zuckerberg? Without going into pop psychology, it doesn’t really affect him at all.
I have yet to meet the CEO of a big tech company who hasn't invested quite a bit of ego in the success of their company. beyond that, the annoying and persistent questions from market analysts and from his own employees will keep him quite busy. To give Mark Zuckerberg a point, I believe he still shows up for that Friday meeting with his employees.
But I will grant that it would be hard to start a sell-off like this for the same reasons that there are a lot of people who love to yell at their TV whilst listening to their favorite political commentator deliver their daily two minute hate yet a lot of them don't bother to vote.
https://www.nytimes.com/2018/11/17/technology/facebook-mark-...
In Facebook’s case we aren’t talking about any new information that would affect the stock price. The dual-class nature of the stock is well-known. Individual investors may not have known, and they may have bought the stock based on wrong information. But for the most part “Zuckerberg still has supermajority voting control” isn’t an actual headline. The only new information is that we now have one datapoint about what Zuckerberg will do when he disagrees with investors. I don’t think that changes the value of the stock in any meaningful way.
The end result is that there’s no reason to believe that upset investors selling off their shares would have any long-term effect on the stock’s price: the moment the price drops, other investors will bid it back up. If Zuckerberg loses any sleep, it will be for less than a week and he wouldn’t need to make any changes (he wouldn’t have time to!).
Have you seen their "In case you missed X's tweets" notification spam?
That's the "Some random nobody hosted a watch party" equivalent on Facebook.
And it can't even be turned off.
All this for what? To present to some investor on a powerpoint "Hey, we increased our conversion rates by 2% by faking notifications. I wonder if this is even legal to trick people to use a service by lying to them there's something they need to attend to.
If you rephrase it as "I want to make as much money as possible" it sounds worse but at its base, thats both what every other CEO and Zuckerberg's real motivations are.
It still boggles the mind that the investors place such a small premium on the right to vote.
I am trying to see how one could defend this type of structure.
It is the ultimate "having your cake and eating it" deal for the founder.
MZ could build a giant money hole with FB money in Antarctica and there is nothing shareholders could do.
It should not be possible to have it both ways as a founder: own minority of shares and yet keep the control.
You want full control? Then do not dilute yourself.
It used to be normal for the founder(s) to have the most (but not the majority) of the shares. See Gates/Allen at Microsoft.
This meant that usually shareholder vote went their way, but there was a possibility that you could get ousted. See Jobs at Apple circa 1985.
It should not be possible to be the absolute king of a publicly owned company while owning less than 50% of a company.
"A string of voting arrangements outlined in Facebook’s SEC filing show that some of the company’s most powerful shareholders have ceded their voting rights to Zuckerberg, the company’s chief executive. While Zuckerberg only owns 28.2 percent of the Facebook’s shares, the additional “shares subject to voting proxy” gives him an additional 30.6 percent of the voting power, leaving him with a total of 56.9 percent of the shareholder voting power. That gives Zuckerberg full control of the company’s decisionmaking.
Under the arrangement, Dustin Moscovitz, Sean Parker, and a host of other Silicon Valley bigwigs have given Zuckerberg “irrevocable proxy” to control their votes. That means that their shares will swing with his shares.
Zuckerberg also has irrevocable control over shares held by DST, Greylock, Accel Partners, and other major firms and investors — and the voting rights that go along with those shares — in most circumstances.
“This is not common at all,” said Menlo Ventures partner Mark Siegel, who has monitored quite a few IPOs in his time in Silicon Valley and spoke to VentureBeat by phone today.
“He negotiated a very unique deal,” said Siegel of Zuckerberg’s coup. While no one knows exactly why Moscovitz, Parker, and a slew of high-powered VC firms would have given up their votes, Siegel speculated, “I’m sure there’s a point where shares were offered with that as a contingency.”"
If "the Market" truly solves everything, after all, it should be possible to leave Facebook high and dry with no public funding left because Zuckerberg has made his business and himself a veritable pariah.
It probably won't happen though. He's basically set himself up as the subject of a permanent condition of Stockholm Syndrome with regard to any investors.
With a majority vote built in for him, any concession to the public is essentially a "let them eat cake" sort of deal.
If a business is highly profitable but the investors don't see it that way, then it may make sense for him to take the company private again.
This happened with Dell about 6 years ago. Michael Dell believed Dell was worth much more, but the market disagreed. He was able to buy back all the shares and take it private again.
Ultimately, you can't get every investor to pull out because the stocks still entitle them to a piece of corporate profits, even without control. Facebook has a P/E of 24, corresponding to earning about 3% interest. There will always be a market for that cash. (Investors seem to think it will ultimately be more profitable than that, so the price is higher than the last 12 months of profit indicate.)
Not owning stock isn't the same as wanting different governance though - an investor might like the fundamentals, and think it could go further, but not under its current x.
There's more than one way to put pressure on the CEO, it's just a question of which people want to throw their weight behind the cause.
I think it's too much to ask, but I hope that it isn't.
75842500 = 25 M. Sounds good to me.