As part of its first quarter earnings report, Facebook announced on Wednesday its board has approved a proposal to create a new class of non-voting stock called Class C in a move to help ensure that Zuckerberg maintains control over Facebook's future. Stockholders will need to approve the plan at the company’s annual stockholder meeting in June in order for the change to take effect. If it passes, which is essentially guaranteed because Zuckerberg already has more than 50% of stockholders’ voting power, Facebook plans to issue two shares of Class C stock as a dividend in respect to each outstanding share of Class A and Class B common stock. Class A and B common stock both contain voting rights.
The move ensures that if Facebook gives stock away to employees as compensation or uses stock in future acquisitions, Zuckerberg’s voting shares won’t be diluted. Also, if Zuckerberg wants to donate or liquidate shares for philanthropy, he can use his Class C stock and maintain majority voting control. This isn’t the first time public companies have created a dual-class structure that includes non-voting stock. Google, now called Alphabet, and Under Armour have both adopted a similar structure to ensure their executives maintain voting control.
“This proposal is designed to create a capital structure that will, among other things, allow us to remain focused on Mr. Zuckerberg’s long-term vision for our company and encourage Mr. Zuckerberg to remain in an active leadership role at Facebook,” the company said in Wedneday’s release.
On Wednesday’s conference call with analysts and investors, Zuckerberg described the structure as critical to ensuring that Facebook, under his leadership, can continue to make smart, long-term bets that may initially raise eyebrows.
“Over the years our structure has helped us make big bets that were controversial initially but were good decisions,” Zuckerberg said on the call, citing Instagram and WhatsApp as examples. He said sees more bold calls in Facebook’s future. “A lot of what we’re building today may not pay off for years.”
In a statement, Zuckerberg went on to say that he intends to continue to invest in connectivity, artificial intelligence and virtual and augmented reality, in particular, to help connect the entire world. He said that the new class of stock would enable him to maintain founder control of the company and allow him and his wife Priscilla to donate their money sooner.
“Right now, there are amazing scientists, educators and doctors around the world doing incredible work,” Zuckerberg said in the statement. ”We want to help them make a bigger difference today, not 30 or 40 years down the road.”
“And over the long term, I think you’ll have better services and be part of a stronger community as a result,” he added.
A proxy Facebook filed today said that Zuckerberg discussed the possibility that he could lose founder control with the company’s board in August last year. Later that month, the board made a special committee to evaluate the potential reclassification of its capital stock and voting structure to ensure founder control, the proxy said. Zuckerberg currently maintains a voting power of about 60.1%, according to the proxy.
The proposal also includes new plans for what should happen to Zuckerberg’s voting shares should he pass away, become disabled or leave the company. When such an event comes to pass, the new structure would trigger an automatic conversion, after a certain period of time, of the Class B super-voting shares and the Class C non-voting shares into standard Class A shares. Facebook’s stellar first-quarter results couldn’t offer better timing for Zuckerberg and the board to request so much founder control.
Source: http://www.forbes.com/sites/kathleenchaykowski/2016/04/27/how-facebook-is-making-sure-zuckerberg-stays-in-control-forever/#28b38a8610fb
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