cebook investors have accused director Marc Andreessen of secretly coaching CEO Mark Zuckerberg regarding a major sale of shares he held, according to a Bloomberg report citing recently unsealed court documents. The structure of the sale enabled Zuckerberg to refocus on philanthropic activities with his wife, Priscilla Chan, while maintaining lifetime control over the company he cofounded.
The suit alleges that Andreessen, the founder of Netscape and Zuckerberg’s long-time mentor, secretly tipped off the CEO about concerns raised by other members of Facebook’s board of directors while Zuckerberg was in the process of getting the company shares reclassified so he could maintain control.
Zuckerberg and Chan last year pledged to give up 99 percent of their Facebook shares, worth about US$45 billion, to philanthropic causes. The couple’s goals include searching for cures to major diseases, and making high-speed Internet accessible to vast areas of the developing world.
No Money, No Problem
The creation of a new nonvoting stock class — a plan that came together this spring — allowed Zuckerberg to pursue his long-term philanthropic interests with his wife, while at the same time maintaining control of the company and avoiding dilution of its voting stock.
However, plaintiffs in the class action suit, including Sjunde AP-Fonden and Amalgamated Bank, as trustee for several key funds, have alleged that Zuckerberg, Andreessen and others breached their fiduciary responsibility by engaging in a massive conflict of interest. They worked to protect Zuckerberg’s interests at the expense of shareholders, according to the complaint filed in the Court of Chancery in the state of Delaware.
Facebook officially is standing by its founder.
“Facebook is confident that the special committee engaged in a thorough and fair process to negotiate a proposal in the best interests of Facebook and its shareholders,” the company said in a statement provided to the E-Commerce Times by company rep Joshua Gunter.
“Marc does not comment on pending legal matters,” Margit Wennmachers, spokesperson for Andreessen Horowitz, told the E-Commerce Times.
Inside Not Straight
If true, the allegations in this case are troubling, because it suggests at least one member of the company’s independent committee of directors was not independent, said Stephen Diamond, an associate professor of law at Santa Clara University.
“The problem here was that originally, the proposed issuance of a third class of stock is clearly intended to provide a personal benefit to Mark Zuckerberg. That creates a conflict of interest,” he told the E-Commerce Times.
“You have to establish some framework to defend the best interests of the company, not just Zuckerberg’s personal interests,” said Diamond.
“It is clear that there was a conflict of interest on the special board to represent shareholder interests that unfairly advantaged Mark Zuckerberg,” observed Heather Salazar, an associate professor of philosophy at Western New England University.
“It also appears that there was a lack of following proper protocol.”
The ultimate “perceived culpability” won’t be determined until the case is concluded, she told the E-Commerce Times.
However, because Zuckerberg enjoys a very favorable reputation in the Facebook community, Salazar continued, he is likely to retain the benefit of the doubt.
“People can usually understand from their own experience that they would want to maintain power over a company that they created. Psychologically, it simply isn’t the case that deceit can be generalized beyond highly situation-specific actions,” she remarked.
“Zuckerberg has worked hard to structure the company so that he could retain control,” said SimplyAgree cofounder Will Norton.
“Many people attribute the company’s success to Zuckerberg’s leadership,” he told the E-Commerce Times. “Similarly, Andreessen created his venture capital firm to help founders retain control of their companies. So, in both cases, I think their actions reflect what they think is best for the company, even if the corporate governance structures employed are not common.”