Facebook was a dorm room idea, and with the proper nurturing from Mark Zuckerberg, it turned into the world’s biggest social network. Now the company wants its founder to remain in charge and is taking definite steps in this direction.
Facebook empowering CEO with new stock class
On Wednesday, Facebook proposed a new class of stock known as C shares with the intent of allowing Zuckerberg to maintain control of the Silicon Valley Company. The creation of the new class of shares will help Zuckerberg preserve his voting power despite him giving away the majority of his stock for charitable purposes.
The move, according to Facebook, was “not a traditional governance model,” but it addeD, “Facebook was not built to be a traditional company.”
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In August 2015, a committee of three directors, Susan Desmond-Hellmann, Erskine Bowles, and Marc Andreessen, started evaluating the company’s capital structure, and this was when it began considering a third class of stock, said the company. Zuckerberg owns almost 4 million Facebook Class A shares and 468 million or 85% of its Class B shares, giving him overall voting power of 60%.
According to the announcement made in December, Zuckerberg and wife Dr. Priscilla Chan would create a limited liability corporation that would receive 99% of their Facebook shares during their lifetimes for charitable purposes. This philanthropic plan of Zuckerberg posed an issue for his long-term control of the company.
A trend among tech firms
On Wednesday, Zuckerberg called Facebook a “founder-led company” and explained the new class of stock, citing the Silicon Valley mantra of founders.
“Facebook has been built on a series of bold moves. When I look out on the future, I see more bold moves ahead of us, not behind us,” the CEO said.
Facebook reported robust first-quarter earnings on Wednesday, posting a 52% YoY jump in sales to $5.3 billion, while profits went up by approximately 300% from $512 million in Q1 FY 2015 to $1.5 billion. Profits, excluding certain items, were 77 cents a share, well above Wall Street expectations of 62 cents a share.
Over the past decade or so, several tech companies have adopted two classes of stock with the intent of allowing founders to cement their voting power. In 2012, Google announced that it was creating a third class of shares to cement the voting power of its founders.
On Wednesday, Facebook shares closed up 0.12% at $108.89. Year to date, the stock is up by almost 3%, while in the last year, it is up by almost 34%.