Unlike the Titanic, which sank in a few hours. Facebook sank a few months later than we expected.
A slow burn but one that hurt.
As we continue to watch their market cap sink by $148 billion, we come to wonder: What actually caused their stocks to sink so low that it is now the largest stock price drop in history?
And Trillium Asset Management, one of Facebook’s shareholders, which manages $11 million in Facebook stock wants Zuckerberg out.
Let’s find out what exactly is happening down under the sea where Facebook is currently.
And after months of grueling struggles…
…Will Mark Zuckerberg catch a break?
An investor has drawn up a new proposal to oust Mark Zuckerberg as chairman of the social-networking giant, according to Business Insider.
The proposal, which reflects the strong feeling among Facebook investors that governance changes are essential, was written by Trillium Asset Management.
Trillium’s proposal, if approved by investors including Facebook’s management, would require the company to appoint an independent chairman, breaking up Zuckerberg’s dual role as CEO and chairman.
“A CEO who also serves as chair can exert excessive influence on the board and its agenda, weakening the board’s oversight of management,” the proposal says.
“Separating the chair and CEO positions reduces this conflict, and an independent chair provides the clearest separation of power between the CEO and the rest of the board.”
Trillium is far from alone. Business Insider spoke with five other shareholders last month who control $3 billion of Facebook stock. They also want an independent chairman, like there is at Apple, Google, Oracle, Twitter, and Microsoft.
What the proposal describes as Facebook’s “mishandling” of scandals is cited as the reason the change is necessary. Crises mentioned include meddling in the 2016 US election, the Cambridge Analytica data scandal, and the recent situation in Myanmar, where Facebook users were accused of inciting violence.
Trillium hopes the proposal will attract the support of other shareholders. A similar proposal to oust Zuckerberg as chairman was put forward last year and rejected, despite 51% of independent investors voting in favor of the change.
This is a symptom of Facebook’s dual-class share structure. Class B shares have 10 times the voting power of class A shares, and it just so happens that Zuckerberg owns more than 75% of class B stock.
It means he has more than half of the voting power at Facebook and therefore the ability to swat away investor proposals. This makes the chances of Trillium’s proposal becoming reality extremely slim.
Facebook declined to comment. The company has previously said splitting Zuckerberg’s role in two would create “uncertainty, confusion, and inefficiency in board and management function.”
But activist investors will be impelled by Facebook’s disastrous second-quarter earnings. Revenue and user growth missed Wall Street’s expectations, which could indicate that the sequence of scandals in recent years is catching up with the company.
In apologies, Mr. Zuckerberg has stated, “We didn’t take a broad enough view of our responsibility.”
However, this proposal was filed before Facebook released its second-quarter earnings update, which sent the firm’s share price tumbling by nearly 24%, wiping as much as $148 billion off its value.
Will Facebook ever catch a break?
Last quarter as Facebook struggled with data leaks, insiders at the company were selling more stocks than they typically do.
In the second quarter, top executives sold 13.6 million shares, according to CNBC, up from 8.3 million in the first quarter, and roughly triple the amount they sold in the last quarter of 2017, according to data from InsiderScore.com.
To be clear, insiders sold in compliance with what’s known as a preapproved selling mechanism that is completely legal.
And there is no evidence to suggest they were acting on inside information about the disastrous quarter that sent Facebook’s stock down nearly 20% on Thursday.
However, their timing happened to be pretty good.
The 13.6 million shares sold by executives, the vast majority, according to MarketWatch, came from…
…The company’s founder and CEO, Mark Zuckerberg?
According to the data reported by MarketWatch, he sold 13 million shares in the second quarter, double what he sold in the first quarter of the year and 10 times what he sold in the fourth quarter of last year.
Three years ago, Zuckerberg announced in a Facebook post he would sell 99% of his shares to fund philanthropic efforts.
This is bad
Ahead of earnings, Zuckerberg sold hundreds of thousands of shares at roughly $30 above where they were trading Thursday. The CEO sold 240,000 shares during market hours Wednesday, July 25, the same day the company reported earnings, and 524,000 shares a day earlier, according to the InsiderScore.com data, which is based on SEC filings, according to MarketWatch.
The company’s top lawyer, Colin Stretch, who announced this week he is leaving the company at the end of the year, was also among the top sellers last week and offloaded $157,000 worth of stock.
Chief Operating Officer Sheryl Sandberg sold $11.5 million worth, while Christopher Cox, chief product officer, sold $2 million worth, according to various sources.
“You have something that’s an outlier here,” James Cox, a professor at Duke University School of Law, told CNBC. “It happened to be a very bad quarter that they had — it doesn’t wear well.”
In this case, based on the Cambridge Analytica scandal, the University of North Carolina at Chapel Hill School of Law professor Thomas Lee Hazen said if nothing else this was “prudent” investing, and a good time to sell, according to CNBC.
“Unless there was something suspect about the plan, and I doubt there was, the sales are not that surprising,” Hazen said. “With the stock rising, the smart thing to do would have been to sell the stock before it took eventual earning hit.”
John Coffee, professor of law and director of the Center on Corporate Governance at Columbia Law School, said not all sales pursuant to Rule 10b5-1 are lawful, “although the exceptions are modest.” He underlined Zuckerberg’s estimated $80 billion net worth, according to CNBC.
Selling Facebook stock wouldn’t make much of a dent, especially when most of it is not going in his own pocket.
“It would not be worth the legal risk,” Coffee concluded.