Facebook money and voting structures

Maya Kosoff has quite the idea:

The idea of giving up Facebook shares is especially interesting, because it involves giving away the attendant voting rights as well. (Of course, it’s not clear what kind of voting rights Palihapitiya currently holds. And the shares’ eventual owner/s could have even less qualms about using the platform in harmful ways.)

But all that aside, selling or giving away voting shares probably won’t be an effective way to force change at Facebook.

You see, even if every top/early Facebook executive had a moral crisis and sold his or her Class B shares — the ones with 10:1 voting power — it would effectively consolidate Mark Zuckerberg’s voting power:

Transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or charitable purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Zuckerberg retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, continue to control a majority of the combined voting power of our outstanding capital stock.

While the latest debate over Facebook’s share structure was reported as a “rare win” for investors, that’s not because investors gained power. It’s because they avoided dilution.

Zuck initially wanted to retain voting control of the company while selling his shares to fund charitable ventures — which notably, are structured like an LLC rather than a foundation.

But instead of selling the shares and reclassifying them to retain voting power, he just, err, held the shares. Some victory.

Related links:
Why be president when you can be pope? — FT Alphaville

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