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What's going on?
On Monday, Facebooks shareholders approved the creation of non-voting shares which means that Facebooks founder and CEO, Mark Zuckerberg, can retain control of the company even if his personal ownership decreases below 50%.
What does this mean?
Zuckerberg announced last year that he intends to put 99% of his shares into a new charitable project but he doesnt want to lose control over the company he founded. So hes created this new share structure: current shareholders will receive an additional two non-voting shares for each voting share they own. Holders of non-voting shares do not have the right to vote on things like the appointment of a board of directors or other major decisions, like the sale of the company. Zuckerberg (and others who own voting shares) will then be able to sell his non-voting shares (or give them away, e.g. to his charity) but retain his voting power. The result of Mondays vote was never in doubt as Zuckerberg currently controls about 60% of the shares.
Why should I care?
For the stock: Trust in thy leader. Zuckerberg is, deservedly, held in extremely high esteem by investors. But these so-called founder-led structures are generally thought to work against the interests of existing investors (why should Zuckerberg get to keep voting power something which has a lot of power and, therefore, value for free?). As long as hes seen as a great leader and the stock is moving up this probably wont be a problem. But just have a look at the ongoing Sumner Redstone / Viacom saga for an example of how painful such structures can become for investors.
The bigger picture: Peter Thiel was re-elected to Facebooks board. It recently emerged that Thiel financially backed Hulk Hogans lawsuit against Gawker, the outcome of which has led to the online media outlet declaring bankruptcy. Thiels involvement was controversial because, in some peoples view, it threatened the freedom of the press. Some were worried that this would create tension with media publishers who use Facebooks Instant Articles.
Originally posted as part of the Finimize daily email.
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