
Facebook Investors Criticize Marc Andreessen for Conflict of Interest - applecore
https://www.bloomberg.com/news/articles/2016-12-08/facebook-s-investors-criticize-marc-andreessen-for-conflict-of-interest?hn=1
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rubyn00bie
... im probably on an island alone here with my opinion but...

I'm glad this is being brought to light... and that investors are angry. This
sort of action I think should be wildly illegal.

It's removing a great deal of value from one's share. That value is being able
to vote. I'm not a FB shareholder but if they had removed my voting power (or
rather made it a 1/3 of what it was) I'd want compensation and then I'd sell
my shares.

This sort of crap is propagating a big issue: the separation of management and
control from ownership of companies. It invites irresponsibility and
selfishness because the cost of such to management is continuously decreasing.
While the owners (shareholders) are the ones to pay the real price for their
actions.

This is how we have problems like CEOs losing money quarter after quarter but
still getting bonuses and ever larger golden parachutes...

It's easy to say he's a "visionary" now but the markets facebook has ridden
its growth on were not a result of it being amazing. It was a combination of
the right time, luck, and a bit of vision (he does deserve some credit). Now
that markets are saturated we'll see how truly visionary he is... acquiring
for growth targets doesn't make him visionary it just makes him a good
business person. If he can't grow it or his vision is off-- it won't matter,
if he missteps and costs his shareholders. He and his cronies will still be
rich as hell and his shareholders will pay the price.

~~~
harryh
The very similar prices of GOOG vs GOOGL kind of contradicts your assertion
that the voting rights of shares are particularly valuable.

~~~
euyyn
OTOH, Larry and Sergey already controlled more than 50% of the votes before
the split.

~~~
harryh
That's a very good point.

I wonder if there are any other companies with stock structures similar to
Google but without all powerful founders that would provide more data on this
question? I don't know of any off the top of my head but my knowledge in this
area isn't particularly strong.

~~~
terravion
The New York Times had similar structure to Google for almost a century.

~~~
harryh
But did they have 2 classes of publicly traded stock, one with voting right &
one without, that could be compared? I don't think so?

~~~
andreareina
Not exactly what you're looking for, but several companies have different
voting power for different classes of publicly traded stock

> Many companies list dual-class shares. Ford's dual-class stock structure,
> for instance, allows the Ford family to control 40% of shareholder voting
> power with only about 4% of the total equity in the company. Berkshire
> Hathaway Inc., which has Warren Buffett as a majority shareholder, offers a
> B share with 1/30th the interest of its A-class shares, but 1/200th of the
> voting power. Echostar Communications demonstrates the extreme power that
> can be had through dual-class shares: founder and CEO Charlie Ergen has
> about 5% of the company's stock, but his super-voting class-A shares give
> him a whopping 90% of the vote. [1]

[1]:
[http://www.investopedia.com/articles/fundamental/04/092204.a...](http://www.investopedia.com/articles/fundamental/04/092204.asp)

------
__derek__
Regardless of how the suit transpires, letting someone maintain control of a
public company while divesting themselves of the risk associated with
ownership strikes me as a bad idea.

~~~
sireat
Unfortunately, this lack of regard for minority shareholders seems the norm
these days.

Google is a similar offender. Let's not even mention what happens when you buy
Alibaba shares, whatever you own is not Alibaba.

The problem arises when company starts going in a direction that most
shareholders would object to. What can you do then?

Let's say Zuck ends up owning 10 % of FB but still has the control of the
voting shares.

Zuck decides that FB should buy an island and attempt to breed dinosaurs at a
cost of cool 50B, should not the other shareholders have any say in this?

Seems ridiculous but what if instead of an island that 50B is spent on
building some futuristic headquarters. Ok Apple is going along this path but
as a shareholder you should have a say in major decisions.

At least with a company like Oracle there is a possibility that Carl Icahn
could raise enough money to put Larry in his place should Oracle start making
boneheaded decisions.

With FB you cannot do anything if you do not like the direction Mark is taking
the company.

As someone else posted, if you want to call the shots without being subjected
to public scrutiny then own 51% of the company or do a private buyout like
Dell did.

Again the fault lies with the investors who are not averse to buying phantom
claims since there is the next greater fool after them.

~~~
kuschku
On the other hand, you can’t just give shareholders all the power – or you’ll
just get corporate raiders, buying 51% of shares, doing a takeover, selling
everything valuable, and destroying jobs.

We’ve seen that so often in the past years in Germany, it’s completely
ridiculous.

~~~
JamesBarney
If your tangible assets are worth more than your company, your company is
doing it wrong.

For the other side of this equation see Japan, and their zombie companies.

~~~
kuschku
Oh, it’s not profitable. The company usually ends up far in debt from selling
off the assets, but the shareholders or the interim CEO they forced in aren’t
responsible.

A common scheme is buying control of a company when it’s in a crisis, selling
off all assets and real estate, forcing them to rent the real estate again,
then the company goes bankrupt, after having no assets left, and the
shareholders made profit, and the company has to pay huge amounts of debt.

It’s the usual way of destroying jobs.

~~~
JamesBarney
Wait are you saying that the new shareholders take over a company, borrow a
lot of money from a bank. Sell off it's assets. Pay all of it's new found cash
out to it's shareholders through dividends. Then goes bankrupt, and screwing
over the bank?

~~~
kuschku
Well, kinda. Sometimes the government has to jump in to save the jobs,
sometimes they just move the pension funds for the employees around and find a
way to pay that out to the shareholders, etc.

------
applecore
From the article:

    
    
        "The cat's in the bag and the bag's in the river," [Andreessen] messaged Zuckerberg.
        "Does that mean the cat's dead?" Zuckerberg texted back, not understanding the spy speak.
        Andreessen replied: "Mission accomplished :)"

~~~
golergka
That's Silicon Valley material right there.

------
slezakattack
Interesting to note: The Andreessen-Zuckerberg friendship goes a bit deeper.
Andreessen's wife, Laura Arrillaga, advised Zuckerberg and his wife on making
the $100MM gift to education in New Jersey. Now that Zuckerberg would like to
sell his shares for philanthropy, there's probably a good chance they'll
continue to go through the Andreessen's for advising. In which case, the
Andreessen family will still be making money (not to say that they aren't
making money now...) as I'm sure the advising is not free. Win-win.

------
jashmenn
To me, as a founder (and former a16z portfolio company employee), this sort of
thing shows why you'd want investment from a16z. They have a reputation for
being founder-friendly. So while this gets spun as some sort of scandal,
instead I think this quietly paints a16z in a friendly light.

~~~
anotherarray
I'm sorry, but this looks like a selfish, one-sided view.

>The plaintiffs suing Facebook's board include pension funds, like the
Employee Retirement System for the city of Providence, Rhode Island, and
individual investors

It may be "founder-friendly", but it's hurting thousands of Average Joes.

~~~
nailer
I can see the point, but it could also be argued that a large part of the
value of FB is created by the control of Zuckerberg. FB can move much faster
without having to move everything past shareholders. And the shareholder's
primary interests are making money.

~~~
calbear81
Yes, that's absolutely true if you decide to remain a private company. Your
obligations change once you decide to go public - pros and cons.

~~~
nailer
Aren't you obligated to make the highest returns for shareholders? In that
case, wouldn't performing an action that slows down the ability of a company
to innovate break that promise?

~~~
d_e_solomon
>Aren't you obligated to make the highest returns for shareholders?

Actually no. As recently as Burwell v Hobby Lobby, the Supreme Court said:

"Modern corporate law does not require for-profit corporations to pursue
profit at the expense of everything else, and many do not."

[http://caselaw.findlaw.com/us-supreme-
court/13-354.html](http://caselaw.findlaw.com/us-supreme-court/13-354.html)

~~~
nailer
Point taken. I should be more exact: is maximising shareholder return a higher
priority than maximising shareholder input?

------
relaunched
Marc's point about the governance requirement being moot because the
government would require Zuck to give up his position in FB anyway is
particularly poignant now. The government certainly hasn't figured out what to
do with PE Trump and his business interests, nor the interests of the other
billionaires he's appointing to key positions.

~~~
knorby
Trump is also unique from pretty much anyone else in government with regard to
conflict of interest law, as is part of the discussion now. Given the term
mentioned was two years for Zuck, he couldn't be president and remain in
control of Facebook.

------
mi100hael
The whole notion of different stock classes for plebs vs insiders is a racket,
anyway. It makes no sense that someone could own a small minority of shares
and yet still exert total control over a company. If you want to raise money
and put yourself on a market without giving up control, you issue bonds like
companies have done for years.

~~~
arjunnarayan
Nobody forced you to buy Facebook shares. The stock classes were disclosed at
IPO. These were the terms. If you want to buy into a company and have control,
buy some other company's stock.

~~~
sireat
Even those shareholders buying the lesser class stock at IPO had certain
rights.

The whole point of the lawsuit is that certain shareholder rights were
violated by board's actions.

~~~
arjunnarayan
Yes, I agree with you. I'm replying specifically to the parent comment that
says dual class stock is a 'racket'.

------
mwambua
I'm curious to know what messaging platform did they used? Also, were they
aware that any communication via the platform would be monitored?

~~~
Bartweiss
This was the question I wanted answered as soon as the article quoted specific
texts.

It's possible that these things weren't monitored, but were disclosed as part
of the suit. Even so, I'm a bit surprised that an exchange like this was
retained at all, rather than run through an encrypted texting app and the
history regularly deleted. It's one of those stories where the existence of
the records is at least as surprising as their contents.

~~~
mwambua
Yeah. I find it really interesting that people of their status would not take
more precautions to ensure the privacy of their conversations.

------
chrischen
Why didn't Zuckerberg and Andreesen use facebook's secret conversation mode?

------
anotherarray
Isn't it ironic they're both facing the same privacy concerns they helped to
create?

------
insider123456
Insider Insider Trading

Under U.S. securities law, the term “insider” is technically used to refer to
any individual who is an officer or a director of an issuer or who is a
beneficial owner of more than 10% of any class of an issuer’s outstanding
securities. Insiders are subject to special reporting requirements and certain
other restrictions upon their ability to trade securities of the issuer.
Because of their relationship with the issuer, these individuals are also more
likely to become aware of material, nonpublic information regarding the
issuer.

However, for purposes of insider trading rules and regulations, insiders are
not just limited to those who meet the technical definition of a corporate
insider. Any individual who has special access to or otherwise comes into
possession of material, nonpublic information regarding an issuer could be
considered an insider. If such an individual trades in the securities of the
issuer based on this information, he or she is considered to have engaged in
insider trading and may be subject to both civil and criminal penalties.

------
arikr
If I'm curious to read the entire court documents, does anyone know where to
find them? Googling with no luck.

"The case In RE Facebook Class C Reclassification Litigation, CA 12228,
Delaware Chancery Court (Wilmington)"

~~~
matthewmcg
The main proceeding is captioned "Southeastern Penn. Trans. Auth. v.
Zuckerberg".

You can read the complaint here: [https://www.chimicles.com/wp-
content/uploads/2016/05/File-St...](https://www.chimicles.com/wp-
content/uploads/2016/05/File-Stamped-Facebook-Complaint.pdf)

~~~
arikr
Doesn't appear to have any of the quoted things from the bloomberg piece i.e.
the text messages, doesn't mention the Zuckerberg <> Andreessen communication
at all

------
quickConclusion
Founders will like the move.

If you are a big investor, the first question during an IPO roadshow of the
next a16z-backed company may well be: "a16z, are you leaving the board after
the IPO?"

------
gourou
> one of the concessions Zuckerberg wanted -- to allow the billionaire to
> serve two years in government without losing control of Facebook -- would
> look particularly irresponsible

So he wants to run for office while maintaining control of the platform where
people get their news from?

~~~
zitterbewegung
They should launch a political targeting advertisement app and call it
Rosebud.

~~~
Balgair
Or the Domed Teapot

------
3pt14159
If you're watching carefully this shouldn't be exactly surprising.

When the Snowden revelations came out Andreessen said that Snowden was a
traitor because the revelations didn't reveal anything that anyone in the know
didn't already know: that there was a massive dragnet surveillance program by
FVEY.

Now, I know I'm a distant minority here when I say that I think that dragnet
surveillance is a good thing (I think our opponents are going to do it anyway
and we should know what they get, though I'm mostly against secret courts /
laws / etc), but what I don't like is hiding information of critical
importance from the democracy.

Should we have dragnet surveillance, I say Yes, and I'd like to convince you
all of my view; but the critical part is that I don't presuppose myself so
important as to label someone like Snowden a traitor just because he's brought
to light something that a few of us have known for a while. Andreessen not
only argues for dragnet surveillance, he argues that Snowden is a traitor.
It's in the same elitist vein as the conflict of interest issue with Facebook.
He views himself as above us all. This isn't unique amongst the SV elite, but
it usually isn't so hopelessly beyond the pale that it so obviously spills
over into becoming obvious.

~~~
specialist
_He views himself as above us all._

John Galt.

------
asher_
Does anyone know what happens in the eventuality of Mark's death or
incapacity? I don't think control like this is inherently wrong, as it seems
to have worked well for Google, but I do wonder what happens after the
founders die. These rather extraordinary provisions for control of public
companies make sense when being granted to specific, exceptional individuals,
but less so as a general power that can be transferred.

So, does anyone know what would happen in that case?

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erebus_rex
Could someone explain why this would dilute voting power?

Voting power of an investor = votes held by investor / total votes

While the dividend will slash the economic ownership of my class A stock, that
stock still has the same voting power because the number of votes and
distribution of those votes has not changed.

Am I missing something?

~~~
cbr

        So he proposed setting up a new Facebook stock class.
        The new shares would automatically dilute the voting
        power of existing shareholders, because every share
        with voting power will split into three shares -- one
        that has power, and two that don't.
    

I think the argument is something like: people knew Zuckerberg would want to
get money out of FB, so even though he currently had majority control they
expected he would give it up soon. Introducing multiple stock classes allows
him to sell stock while keeping majority control, so he's reducing other
people's voting power relative to expectations, while technically everyone who
had N votes before the split still has N votes after the split.

------
golergka
> When they met, Zuckerberg, new to Silicon Valley, didn't know what Netscape
> was.

A young man who was presumably actively using internet didn't know what
Netscape was, around 2004?

~~~
cbr
Zuckerberg is a couple years older than me and I knew what Netscape was then,
so I'd be pretty surprised if he didn't.

(Though in 2004 we had already had Netscape -> Mozilla Suite -> Phoenix ->
Firebird -> Firefox, so lots of names to keep straight.)

------
mgleason_3
Wait, Mark Zuckerberg, the guy who screwed one of his initial investors out of
a huge amount of stock, now wants to screw his stockholders with inside help
from a board member. He could maintain control even if he sells most of his
stock and is completely distracted by something else - like running for
office.

But, its OK because some of the money would be used for philanthropy?

~~~
renaudg
The real Eduardo Saverin story is not the one depicted in the "Social Network"
movie.

~~~
rahrahrah
It actually is. And Eduardo Saverin got a few million in damages for what
would be a hundreds of billion in stock that was stolen from him.

~~~
skinnymuch
Eduardo is a billionaire because of Facebook...

------
angersock
Isn't this just an example of the risk you take by investing in a company with
majority stake held by one person?

~~~
matthewmcg
Generally yes, but Delaware law provides protections for minority investors
when the controlling shareholder is on both sides of a transaction.

Here, the board of directors appointed a special committee of supposedly
disinterested directors to review the proposal and ensure that it was fair to
the minority shareholders. When a transaction is "blessed" in this way it is
very hard for a shareholder to challenge it.

The investors allege that two of the three committee members weren't really
disinterested because of their personal and business ties to Zuckerberg.

~~~
yuhong
I wonder if this is actually a good idea in the first place.

------
rahrahrah
These are a bunch of bad people.

------
sethbannon
This article seems to have an agenda. It feels like it's intentionally
portraying things in a mischievous frame. Maybe that's just because it's
getting its information from a lawsuit written by hostile lawyers, but it
still doesn't seem unbiased. As an example, the line "While on the committee,
Andreessen slipped Zuckerberg information about their progress and concerns,
helping Zuckerberg negotiate against them." could easily have been written as
"While on the committee, Andreessen kept Zuckerberg up to date about their
progress and concerns, helping Zuckerberg know how to best proceed with the
discussions."

~~~
forgetsusername
> _" While on the committee, Andreessen kept Zuckerberg up to date about their
> progress and concerns, helping Zuckerberg know how to best proceed with the
> discussions."_

The lawsuit is alleging Andreesen had no right to do that, regardless of how
you try to colour it.

