Facebook is changing its rules so that Mark Zuckerberg can’t keep control if he leaves
Facebook cofounder and CEO Mark Zuckerberg has a tight grip on the company, thanks to special shares he owns that give him majority voting control.
But even absolute power doesn’t last forever. And Facebook is changing its rules so that if Zuckerberg ever leaves the company, his control of it will vanish into thin air.
Facebook is changing its certificate of incorporation so that Zuckerberg’s majority voting control is good only while he is an executive at the company. The changes also specify that Zuckerberg cannot pass his majority control to his descendants — including his daughter, Maxima Zuckerberg — in the event of his death.
“These new terms thus ensure that we will not remain a founder-controlled company after we cease to be a founder-led company,” Facebook’s board wrote in its proxy filing.
Facebook isn’t expecting Zuckerberg, 32, to leave anytime soon, but the company wants to make sure that the next CEO it hires won’t be beholden to him or his family.
The changes are related to the company’s plan to create a new class of nonvoting stock that will help Zuckerberg achieve philanthropic goals, including giving away up to $1 billion of stock for the next three years, without losing his majority control of Facebook. Along with the new class of shares, Facebook is also including a “sunset” provision affecting Zuckerberg’s stock if he ever chooses to leave the company or in the unlikely event that he gets fired.
The sunset provision was disclosed with the plan back in April, though it has gone largely unnoticed. Shareholders are being asked to vote on the plan on June 20 (though the vote is largely a formality, since Zuckerberg controls more than 60% of Facebook’s voting power).
Just in case Zuckerberg leaves
Until now, if Zuckerberg were to quit or get fired, he would retain his majority control of the company. Even if Zuckerberg died, his estate would keep the control, which could pass it on to his wife or daughter (or any potential future children or even grandchildren).
“Under the Current Certificate, Mr. Zuckerberg would be able to pass along his shares […] to his descendants after his death, thus leading to potential multi-generational majority voting control of the company,” Facebook’s board of directors wrote.
When the new plan is adopted, that will no longer be the case. If he leaves for any reason, he becomes just another shareholder. And he can’t transfer his majority control to anyone.
It means that if Zuckerberg ever leaves, Facebook’s board is free to hire the best replacement CEO, not just the one who shares some DNA with the founder, to paraphrase the SEC filing.
Plus, it means that if Facebook ever does need to replace Zuckerberg, it will be easier to find a new CEO — it would be hard to recruit somebody worthwhile to lead the company if the person must answer to the previous guy who held the job.
“The Special Committee and the board of directors also believe that the quality of a chief executive officer who would step into the role under these circumstances is likely to be significantly lower than it would be if we were no longer controlled by Mr. Zuckerberg, which could result in the potential loss of significant value for us,” Facebook’s board wrote.