Facebook has a boardroom problem

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NEW YORK, (Reuters Breakingviews) - Facebook has a boardroom problem – but what, exactly? Two proxy advisers disagree, offering investors different reasons to withhold votes from mostly different directors at the company’s annual meeting on May 31. Founder and Chief Executive Mark Zuckerberg has voting control, so any such move by shareholders would only be a protest. Through the confusion, though, shines the need to puncture Zuckerberg’s bubble.

The $530 billion social network’s business is growing at an astonishing clip – the top line is expanding at nearly a 50 percent annual pace. Facebook’s shares have returned more than 45 percent per annum over the past five years. Yet something is still wrong enough for ISS, one of the two big proxy advisory firms, to include even Zuckerberg himself on its list of directors from whom it says investors should withhold votes.

ISS also objects to board members Susan Desmond-Hellmann, Reed Hastings, Sheryl Sandberg and Peter Thiel. The principal reasons given are the lack of a formal nominating committee for directors and the absence of a so-called say on pay on this year’s shareholder ballot.

Glass Lewis, the other prominent adviser, reckons the undesirables are Marc Andreessen, Erskine Bowles and Desmond-Hellmann. These folks comprised the audit committee, which was supposed to keep an eye on legal and regulatory risks. The combination of fake-news concerns, alleged Russian election interference and the Cambridge Analytica data scandal makes it look as though there wasn’t enough oversight going on.

Both proxy firms agree that a shareholder proposal for a one-share, one vote system should be supported. Though that won’t pass, it’s beginning to get at the root of the problem. Thanks largely to his super-voting stock, Zuckerberg casts nearly 60 percent of the votes at Facebook. Though he has appeared before Congress and elsewhere to answer questions about Facebook’s practices, he mostly sounds like he’s reluctantly catching up to the issues rather than getting ahead of them.

Broader business worries include intensifying calls for regulation of big tech firms and advertiser disquiet. To handle all of this, Zuckerberg could use some help from outsiders who won’t shy away from difficult realities. And although he’s unassailably the boss, greater accountability wouldn’t hurt, either.

CONTEXT NEWS

- Proxy adviser ISS recommends that Facebook shareholders vote against the nomination of Susan Desmond-Hellmann, Reed Hastings, Sheryl Sandberg, Peter Thiel and Mark Zuckerberg to the company’s board at its annual meeting, scheduled for May 31. ISS finds fault with the company’s lack of a formal nominating committee for directors and the absence of a say-on-pay proposal on the ballot.

- Rival advisory service Glass Lewis recommends voting against Marc Andreessen, Erskine Bowles and Desmond-Hellmann, the members of the Facebook board’s audit committee, which Glass Lewis says has failed to fulfill its obligations in monitoring and mitigating legal and regulatory risks.

- Founder Mark Zuckerberg controls just under 60 percent of the company vote.

(Editing by Richard Beales and Martin Langfield)