Facebook just crushed its quarterly results and topped Q1 this week, but the highlight of the event was the company’s plan to issues new Class C stock with no-voting rights for all, which handovers the ultimate decision making power back to Mark Zuckerberg, the CEO and founder of the company.
The plan to issue new Facebook stock hasn’t been taken too well by a stockholder, and he has filed a class-action lawsuit against Facebook, in an attempt to stop this plan, calling ‘the move an unfair deal to entrench Chief Executive Mark Zuckerberg as controlling shareholder‘.
Facebook’s new stock plan proposes a new three-for-one stock split in order to create a new class of non-voting shares, that will be publicly traded under a new symbol. As a result of this plan, each shareholder will thus receive two Class C shares in exchange of one Class A/Class B share respectively, but will hold no voting rights in the decision and executive changes of the company. This plan has been called out as a saving strategy for Mark Zuckerberg to retain his throne, who in December, had announced that he’s donating about 99 per cent of his Facebook shares into a new philanthropy project focusing on human potential and equality.
As slated in the new Class C stock plan, the Class C shares will have the same other economic rights as Class A and Class B shares. But, the Class B shareholders will have 10 votes in the voting process as compared to the one vote of Class A shareholders, which includes the general public. And most of the Class B stock is held by Facebook Executives, including Mark Zuckerberg. The immense Class B voting rights, clubbed with the non-voting Class C stock will thus, give the generous philanthropist, Mark Zuckerberg, the power to stand atop the leadership chart, and run Facebook on his own terms.
The key point on which the lawsuit contends is that the Facebook board committee which approved the share deal “did not bargain hard” with Zuckerberg “to obtain anything of meaningful value” in exchange for granting Zuckerberg added control.
The lawsuit also mentions that,
Zuckerberg wants to retain his power while, selling off large amounts of his stockholdings, and reaping billions of dollars in proceeds. The issuance of the Class C stock will, in effect, have the same effect as a grant to Zuckerberg of billions of dollars in equity, for which he will pay nothing.
This is a similar scenario, which was settled by Google in 2013, and it now has two stocks successfully trading in the US stock exchange. Facebook might also settle out of court and thus go ahead with it plan, and still see Zuckerberg at the helm of the company, trying to realize his dream of connecting everyone in the world.