Facebook Ownership Structure Should Scare Investors More Than Botched IPO

Article by Dan Bigman, Forbes Staff

For all the huffing and puffing and blown around houses associated with Facebook’s ugly IPO, there’s a looming problem associated with the company that’s getting lost in the mix. That’s a pity, because over the next few years it promises to have a more profound influence over the fortunes of Facebook investors than anything else.

I’m not talking about mobile, or advertising or regulation. I’m talking about the company’s dual-class share structure. As you likely know, founder Mark Zuckerbergset up the company so that Class-B shares (which he controls) carry ten times the voting power of the A-shares. That means he owns about 18% of the company, but controls more than 50% of the voting power.

It’s the preferred setup of SuperFounders and Family Scions from Larry Pageand Sergey Brin at Google to Zuckerberg’s mentor, Don Graham at thestumbling, fumbling Washington Post Company to Silicon Valley newbies like Zynga and LinkedIn.

http://www.forbes.com/sites/danbigman/2012/05/23/facebook-ownership-structure-should-scare-investors-more-than-botched-ipo/

NickyJack Comment:  This shouldn't be new news to you if you have already invested in Facebook, but should deter you if you are considering.  At the helm of this colossal social media giant you have an arrogant person like Mark Zuckerberg. 

In the article by Dan Bigman, he points out that, "Because more than 50% of the voting power for the board of directors is held by one guy, Facebook listed itself under what’s called the “controlled company” exception to corporate governance rules for public companies. That means no independent board members, no compensation committee, and no independent nominating function."  This should be alarming to investors considering the sheer size of this company.  Without proper oversight this company could impose large losses for shareholders.