Perspectives from ISB

The professionalization of family businesses is a tricky subject. More often than not, the business transitions from a founder led to a founder controlled organization. It becomes difficult for founders to let go and hand over the reins to a professional team, even after retirement from management. In a recent move, Facebook is aiming to bolster its corporate governance by eliminating this possibility in the future.

Mark Zuckerberg currently owns about 4 million Class A shares and about 419 million Class B shares in Facebook, collectively representing about 53.8 percent of total outstanding voting power and 14.8 percent of total outstanding economic interests in the company. Under current provisions, Zuckerberg is allowed to hold Class B shares and exercise majority voting control even if he leaves the company. Zuckerberg would also be allowed to pass his Class B shares, and possibly his majority voting control, to descendants after his death.

In an effort to prevent Facebook from becoming a founder led company to a founder-controlled company, Facebook Inc’s board has proposed to remove Zuckerberg’s majority voting control in the event he decided to exit management at some point in future. This would ensure that the future Facebook chief’s, management powers would not be limited. The proposed move would be up for voting on June 20, at Facebook’s annual general meeting.