Breakingviews: If only Facebook’s faux governance was fake news

Published Fri, Dec 9 20163:29 PM EST

Breakingviews

Jennifer Saba

Facebook 's latest corporate-governance lapse reads like the sort of bad fake news that has been flowing through the social network. A lawsuit accuses board member Marc Andreessen of being in cahoots with Chief Executive Mark Zuckerberg over a controversial new class of stock. It's a fresh reminder to minority shareholders of just how they are regarded. To help accommodate a desire by Zuckerberg and his wife to sell Facebook shares for philanthropic purposes, the $340 billion company allowed a proposal to go forward in April on the creation of a third, non-voting class of shares that would allow the founder to retain control for longer. It appointed supposedly independent directors to a special committee to review the plan. It included Andreessen, the Netscape co-founder and venture capitalist. According to recently unsealed court documents, Andreessen seems to have spent as much time looking out for Zuckerberg as other investors. He allegedly passed along committee questions in advance and even went so far as to send Zuckerberg text messages and emoticons during the meetings to coach him. Andreessen also allegedly warned the CEO about committee concerns over his trying to find a way to keep a firm grip on Facebook while possibly serving in government. More from Breakingviews : Coke chairman-CEO split could inject new fizz The episode, as described by the plaintiffs, reflects badly on the company and the board. Andreessen's ubiquitous presence across Silicon Valley has led to other potential conflicts of interest, including when eBay sold Skype. As Facebook was prepping to go public, Zuckerberg bought Instagram without consulting directors. And board member Peter Thiel, the billionaire co-founder of PayPal, financed Hulk Hogan's lawsuit against online media outfit Gawker Media, a case that invited questions about Facebook's First Amendment bona fides. It has been no secret to any buyer of Facebook stock that Zuckerberg controls some 60 percent of the vote. That means directors serve at his whim. Investors also have been suitably rewarded so far despite the arrangement. Since the shares made their market debut in 2012, they have tripled in price. Zuckerberg is clearly an integral part of the company's success. That won't necessarily always be the case, however. He has broad ambitions in philanthropy and even maybe politics. For Facebook's second-class shareholders, the red flags already flying have been hoisted even higher. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Marc Andreessen, co-founder and general partner of Andreessen Horowitz.

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