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Facebook faces renewed push to split CEO, chairman roles amid controversies


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Facebook faces renewed push to split CEO, chairman roles amid controversies

Facebook Inc. founder Mark Zuckerberg will face renewed calls from investors to ease his iron grip on the company after another wave of scandal engulfed the social network operator.

Shareholders in 2022 will seek to split the roles of CEO and chairman, both currently held by Zuckerberg, to create an independent chair seat, marking the fourth year in a row for such a proposal, according to Illinois State Treasurer Michael Frerichs, who is helping to lead the push. Calls for greater oversight have grown after whistleblower Frances Haugen revealed that Facebook management was aware of how its platforms have harmed some users.

"This is not their first scandal, and it's not going to be the last," Frerichs said. “We've been talking about the governance transparency issues for years."

The difficulty for minority investors is that Zuckerberg is able veto efforts to boost investor oversight because of a two-tier share structure that gives him almost 58% voting control over the company. Similar proposals in 2017, 2019, 2020 and 2021 all failed, despite winning support from institutional investors, including the likes of Vanguard Group Inc., AllianceBernstein Holding LP, The Bank of New York Mellon Corp., The Goldman Sachs Group Inc. and JPMorgan Chase & Co. Behind Zuckerberg, Vanguard is Facebook's second largest shareholder, owning 182,466,282 shares, or 6.5% of common shares outstanding, as of June 30.

"Unfortunately, because of the dual-class structure of the votes, we've been unsuccessful" in breaking up the two positions, Frerichs said.

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Governance 101

Still, Zuckerberg’s role at Facebook is becoming more of a lightning rod for both activist shareholders and regulators. Environmental, social and governance investors are turning against the company because the recent scandal — centered on teen mental health, and Facebook's use by human traffickers and drug cartels — has exacerbated concerns about the company’s management structure, said Natasha Lamb, managing partner at sustainable investment firm Arjuna Capital.

"It's Corporate Governance 101 that you separate the chair from the CEO," she said, noting the desire to disassociate with the social media company will not be limited to just ESG investors.

Facebook did not respond to requests for comment from S&P Global Market Intelligence about investor concerns. It has publicly said it is taking steps to divert users away from harmful content and give parents more control over teen Instagram accounts.

In its 2021 proxy, Facebook said Zuckerberg's control allows the company to focus on long-term success rather than short-term stock movement. Under Zuckerberg's leadership, Facebook has grown from serving only select college campuses to reaching 2.90 billion global monthly active users, according to its second-quarter 2021 earnings release. The stock has surged 750% since Facebook's IPO in May 2012, and the shares have still outperformed the S&P 500 Index this year, even with the recent sell-off. Since the end of August, Facebook's shares were down almost 15% as of market close Oct. 12.

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Supervoting shares

Zuckerberg retains control of Facebook through Class B shares, which come with 10-to-1 voting rights. Class A shares — the type that public shareholders may buy — have one vote per share.

These dual-class share structures are not uncommon among tech companies. Alphabet Inc., Lyft Inc. and Pinterest Inc. have all issued two types of shares that favor founders and insiders. Alphabet and Lyft have split the CEO and chairman roles, while Pinterest, like Facebook, has not.

Zuckerberg is likely to face increasing pressure given the specter of increasing regulatory scrutiny. The company is already fighting a legal battle with the Federal Trade Commission that could force Facebook to divest its Instagram, LLC and WhatsApp Inc. assets.

"I think there's enormous regulatory risk that has been served up because of inaction on his part," Lamb said of Zuckerberg. "He is the king on the throne, and that's why Congress and the FTC are getting involved."

Facebook could also see increased litigation from state attorneys general and class action suits, according to New Street Research Policy Advisor Blair Levin. He pointed to past lawsuits against tobacco companies and drug makers, and noted these lawsuits would create an opportunity for expensive settlements that would address the issues more quickly than legislation.

Path forward

Facebook has a strong public policy team to contend with this scrutiny, said Scott Kessler, global sector lead for TMT at investment research company Third Bridge. Its openness to discussing regulatory issues, such as reforming the Section 230 online liability shield and supporting a global minimum tax, has served as a good strategy for framing the company in a positive light, Kessler added.

The company’s focus on legal and regulator risks, as well as its surging growth, has helped fuel a more than 10-fold jump in the company’s lobbying spending over the past decade. Expenditures totaled $19.7 million in 2020, and it spent another $9.6 million in the first half of 2021, according to, a website tracking money in U.S. politics..

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Illinois' Frerichs expects Facebook to spend even more on lobbying and PR because of the on-going scandals. Still, the company and its founder needs to do more than just saying the right things in the middle of a crisis, he said.

"It isn't enough for Facebook to say that it embraces transparency, honesty and civic integrity," he said. "As the face of the organization, it is up to Zuckerberg to actually operationalize those words."