This is bizarre. I get throwing in a little extra to shield executives, but $5 billion?
I think it's bizarre that is what you find bizarre. You've already accepted paying more to shield the executives, so after that it's just negotiation.
What I find bizarre is that essentially "donating" money to a government regulator can induce the regulator to cover up and turn a blind eye to a person's alleged or suspected breaches in the course of investigations and prosecutions.
In the world of plebs, this is either bribery or blackmail, depending on who blinks first, and conspiracy.
I understand corporations "agreeing" to punishment with regulators like it's some cordial negotiation. It seems perverse but if the alternative is horrendously long expensive court cases that the regulator can't afford and doesn't have a good chance of winning, then sure. It does tell me the legislation and regulatory environment is broken (probably by design), but at least I understand regulators operating as they do in the environment they find themselves in.
But this? "Slip us some cash under the table and Mark's little problem goes away" veers into the fundamentally unethical and unjust to me. I'm sure it's just that my tiny pleb brain is not sophisticated or rich enough to understand.
It doesn't much matter to me what the flavor is, what matters is that this is corruption in action, pure and simple.
To one up you - i find it bizare that you think that's the bizare part.
The entire point of a corporation, as a governance structure, in general is to limit liability for its shareholders. That's true for all corporations not just facebook. Its the reason people establish corporations instead of running businesseses informally as an individual.
The only surprising thing is the cost benefit trade-off here seems a bit much. Its not surprising that the facebook corporation tried to do its entire reason for existing.
Except they're not doing it to protect Zuckerberg or Sandberg as shareholders they're doing it to protect them as decision making executives. More to the point if they didn't have liability due to the structure of a corporation they would never have been in "danger" and therefore the pay-off would have been unnecessary.
Mark is both, but his problem wasn't due to his share of the company but rather due to his actions or inaction as an executive.
Law does not protect executives breaking the law. It protects shareholders from executives who break it.
Or at least it was supposed to work this way. It seems when billions are on the table culpability is subject to negotiation.
I'm not sure if you've replied to the wrong message, but I'm obviously talking about executive actions and alleged breaches, not shareholder liability.
The outrageous part is that someone accepted that money.
But they/we tend to be dismissed as crazy extremists by polite society.
You're not wrong - "might makes right" is certainly old-fashioned.
Might makes right is not old fashioned at all, the mighty are just better at fooling people.
The idea that someone can buy their way out of breach of laws and regulations like this is fundamentally unjust.
I'm not saying in any one particular instance of it happening any people are taking explicit kickbacks. But the regulating body and process as a whole has become corrupt by allowing this to happen. Whether it's because they get promoted because they netted a lot of fines, or because they later go work for private industry who scratches their backs, or simply that the government likes the revenue so they allow rich people to buy their way out of trouble and that's mutually beneficial for both parties, it is corruption.
This comment, taken as a whole, is notable in what it does not mention.
For example, it doesn't talk about the many kinds of corruption that regulation mitigates (yes, imperfectly).
"Is government regulation good or bad?" is perhaps an ok introductory question to start off with. However, it is simplistic and overly generalized. So if one does not progress beyond it, one hasn't gotten very far. A practical question is "What kinds and implementations of government regulation serve our goals?"
The prosecutor should just not be allowed to cut such deals. Pursue every case to a conclusion, so that we know what corruption there is.
Regulation also can help mitigate many forms of corruption. A systems analysis is one good (systematic!) way to consider all the factors.
If i had singular control of a company the size of FB and the ability to spend it's money to avoid any sort of liability, i'd take the offer too.
And this $5 billion isn't even his money; it's the company's.
I’m not so sure. If you asked a random person if they could wash the dishes, or not do them but someone other person would have to pay 5 billion dollars, what would the result be?
I feel like these figures -- 50x and $5B -- are good things for people to keep in mind next time their company asks them for uncompensated self-sacrifice.
There is no limit of someone else's money i'd spend - repercussion free - to avoid the slightest bit of liability. I can imagine the same thing applies to Mark. tbh can't fault him for it.
The blame for this behavior lies in the FTC for brokering a deal (as if the US needed money? Was it for a big-number press cycle?) and for early stage investors in FB for allowing a business with such a brass stock agreement.
if he has the ability to make fb pay for it why not?
It's just like me not giving a second thought to getting in my car, driving down to the market that's 1.5 blocks away to pick up some eggs. When I didn't have money, didn't have a car, that was unbelievable to me. But now it's just second nature.
To people with wealth at that scale, hundred million vs single digit billion might not be such a big deal. (I mean it's one order of magnitude to go from x00 million to y billion, so it's not that far fetched for a rich person to take that as is)
The real discussion should be why the fine was so low and wasn't in the hundreds of billion to trillion range in the first place. That's the real steal.
USA is home of justice to the highest bidder.
What are other startups / companies where the founder is in full control?
Is it possible, as a founder, to maintain complete control of the board and the company through Series A - E ?
I've seen several short answers on this in other threads, but I want to know more about this.
It's his company. When you make the company and give out shares, just get the lawyers to agree to allow you to keep control. Its just legal documents. If you have a good startup VCs and angels may be willing to give you better terms.
> Is it possible, as a founder, to maintain complete control of the board and the company through Series A - E ?
Sure. I've noticed several company IPO announcements on HN lately included the founder-control shares in their IPO prospectus, so it can't be too unique.
The way they do this is by having share classes. Eg Class A shares each gets x% of company and y% of votes. Class B shares get X% of company and [Y/20]% (or 0 sometimes) of votes. The 1/20 is arbitraty btw, it can be any ratio. Sometimes i see A, B, C shares where A is founder/vc tier with extra votes, B is "regular" with smaller votes, and C is no-vote shares, and often C is sold through IPOs into the exchanges.
I have no data on how common these different schemes are, but they're things ive seen in HN-announced start-ups and IPOs in the last year, so take that as anecdotal.
Zuckerberg and other very early people had Class B stock so they can continue to have more than 50% of the vote even when they own less than 50% of the stock.
This was a really popular stock structure in Silicon Valley for a while because it cements founders in control - Evan Siegel at Snap has the same deal, and Adam Neumann at WeWork was about to do it. But now there's a lot of push back against it, and some indexes like the S&P 500 refuse to list new stocks with this dual class structure.
"Zuckerberg owns or controls 88.1% of Facebook’s Class B shares, which each have 10 votes at the annual meeting — 3.98 billion votes overall. There are only 2.4 billion Class A shares, which are the only shares ordinary investors can buy. So any proposal Zuckerberg doesn’t like will fail by nearly a 2-1 margin, assuming all Class A investors vote together, which never happens. (Zuckerberg owns 0.5% of the Class A shares.)"
Clearly all throughout the funding rounds he made sure he controlled the shares that mattered.
And the investors here are very sophisticated venture capitalists. They understand very well what deals look like, and risks, and whatever else. Probably better than the founders themselves.
And they wanted in badly enough that they were willing to sign on terms that kept Zuck in control. And that decision made them very, very, obscenely, filthy, rich. Not a bad investment decision at all.
Minority shareholders do have rights, but keeping control as a founder is easy if the VCs want in badly enough. With facebook, they did.
https://skeptics.stackexchange.com/questions/8146/are-u-s-co...
https://s21.q4cdn.com/399680738/files/doc_downloads/governan...
The lawsuits may happen, however they also almost never win.
https://corpgov.law.harvard.edu/2020/03/10/directors-fiducia...
This is a special case where saying “business judgement rule” might not be enough to get Facebook out of trouble, though I’m sure Facebook’s lawyers will dispute that.
Zuck has set up the share structure so that even if all the other shareholders collectivised to move against him on *any* issue he’d still have his way. That’s a dictatorship.
Investors in Faceache get no dividends; the only reason they're there is to speculate on the value of their stock. With no dividends, there's no reason for stockholders to worry about profits. They just want to see the share-price increase.
I dunno, I'm not an investor. The last two decades are littered with the corpses of social networking firms that failed. I imagine Faceache must own assets, in the form of IP and so on; I doubt their value comes anywhere close to the company's market valuation.
That valuation is suspended from the fickle thread of shareholder sentiment; so on my reading, Faceache shares amount to a bubble.
Interesting. Thanks!
I don't agree that they should be allowed do this, but it seems like the obvious move if they can get away with it - for shareholder value as well.
So year over year, Facebook made that money back last quarter.
If the lower settlement might have slowed year over year growth, five billion would likely be money well spent.
Particularly if there wasn't an obviously better return for the cash. When you have billions of cash on hand finding investments that size is a hard problem.
Keep in mind that the fine is an operational expense. Right off the top, there's potential double digit return from reducing taxable income. In addition, the company better maintains the book value of goodwill assets without the depositions and can borrow money at more favorable rates.
On top of that, executives and staff aren't spending time in depositions and answering tough questions from the press.
The interesting thing is figuring out why it makes sense despite my direct experience. Even though I would have preferred they gave me some of that money instead.
Executives of a certain vintage learned a lot watching the carnage from US v Microsoft. Talk about destruction of shareholder value. I would say for Facebook this is money well spent.
Please elaborate.
Look at the influence and trajectory of Microsoft before and after the lawsuit. The executive team was distracted for a year. The employees were demoralized by bad press coverage. Competitors were emboldened. And for internet and mobile, Microsoft got put on the back foot before the 21st century even began.
Facebook management and board is full of people who observed and lived that experience. There is a case study of corporate distraction and they have read it.
https://www.vox.com/2017/10/23/16412108/facebook-microsoft-2...
The math is "potential damage from a deposition + fine" vs "paying 50x the fine up front".
Was thinking about this. Would be curious to know what information was worth $5bil.
If Zuckerberg really did pay more than he had to solely for his benefit at the expense of minority holders then it would be an example of this.
[0] https://www.dailymail.co.uk/news/article-8261775/Facebook-in...
It’s a simple calculation of utility: minus $5B in market cap for the fine, vs unknown market cap loss from CEO in prison
The market cap is a ‘fantasy number’ in the sense that the liquidity doesn’t exist to market sell/buy all outstanding shares at the current bid/ask, I’ll grant you that.
I don't think it's just though.
A CEO being as well a shareholder of the company wears 2 hats => as CEO he has to act in the best interest of the company (which includes all shareholders?) => a conflict with remaining shareholders arises if he as CEO acted for his own personal benefit? Something like this? I think that Matt Levine's conclusion was open, but I'm not sure... .
1. https://www.bloomberg.com/news/articles/2021-05-26/facebook-...
There must be some logical reason they would pay out close to 50x the demanded payout, but none of us for the life of us can imagine why beyond shielding personal liability. So, why is that possible?
Not sure why you felt the need to clarify that the settlement happened after the 5B was paid when the 5B was conditional on Zuckerberg / Sandberg not being liable in the settlement.
The question is what did these people know / do that was worth 47x the fine to keep them safe.
The 47x number is apples and oranges. They are two different fines / issues.
What Zuck knew isn't relevant, for, the fine was likely "if all the bad things we think you did, happened, then this is the fine".
So, in essence, he admitted to all the questions being asked.
Zuck / Facebook paid, rather then shine greater light on things. So yeah, bad stuff surely, but I see no direct connection to the other fine.
In fact, by relating it to the other fine, people are missing that it may have been an entirely other (very bad) matter.
The bit about personal liability, etc, etc is standard boilerplate stuff.
That claim is not being made. The question is not whether another CEO could have made money from the start, the question is whether another CEO could have made more money from the point at which Facebook paid billions to shield Mark Zuckerberg. What has he personally done to move the needle that much in the past two years?
We hear about fines and such going into the "general fund" -- I think this is BS - the public should be specifically the ones to benefit _directly_ from such corporate overreach fines and such.
Housing fines should buy houses.
Financial fraud should pay those defrauded - directly.
Cyber [crimes?] should be paid to directly protect users
etc....
We have heard of so many fines in the past, but no real transparency on exactly how they are spent.
And it shouldnt be in some obtuse web/budget location to determine...
There should be a dedicated fines.gov or some such that lists every single company fined, how much and how it was spent.
However, it also doesn't make sense, because it doesn't seem "fair." The money from fines should be used to compensate victims.
That being said, compare this to the common practice of civil forfeiture: The money often goes back to the very same government entities who took the money. This is very bad because it incentivizes government agencies to be way too aggressive.
On balance, I think it might be better for the money to go back to the general fund. That way the temptation for corruption is severely mitigated. Though, I'm not sure about this, as I haven't spent much time thinking about it. There could, perhaps, be a more nuanced approach, based on each unique agencies needs/situation. That would require a lot of legislation, though.
The post above has emotion -- and I'm personally ok with that -- but I think it would be better received without the two letter abbreviations for swear words.