King Mark's unshakeable reign
Meta/Facebook's historic stock plunge slashed the company's value by roughly one-third over the past week and roiled markets but left one key figure unbowed: Founder-CEO Mark Zuckerberg may be poorer, but he's no less powerful.
Why it matters: Other CEOs facing such disasters have quit, or at least faced boardroom challenges or shareholder revolts. But Zuckerberg's ownership of a class of shares with special voting rights gives him effective and absolute control over the company.
Driving the news: After losing 1/4 of its value at the end of last week, Meta's stock continued to drop Monday and Tuesday.
- Investors responded to a quarterly earnings report that revealed the first-ever decline in Facebook daily active users and forecast continued headwinds from Apple's new privacy rules that limit ad targeting on iPhones.
- Meta reiterated that it has burned $10 billion on its Reality Labs VR division and said it intends to continue freely spending on its ambitious metaverse-building plan.
Zuckerberg addressed his troops the day of the earnings report and, per Bloomberg, joked about his teary appearance: His red eyes were the result of a scratched cornea, not grief over the losses, he told a company-wide virtual meeting.
- As the reality of the market drubbing sinks in, the CEO may face discontent and departures from employees whose stock options have lost value. He may face criticism and second-guessing over his bet on the metaverse.
- One thing he will not face is a classic tender-offer fight, where insurgent investors try to wrest control of a company by buying up voting shares. If Zuckerberg won't sell or quit, no amount of outside money or muscle can wrest it from his grip.
How it works: Two decades ago, Silicon Valley developed a model for making sure that founders could keep hold of their companies even while taking in vast amounts of investment that would normally dilute their ownership and power.
- Google's founders and early investors pioneered this scheme, borrowing a corporate structure that had been used for decades in the newspaper industry to allow families to retain control of their firms.
- A previous generation of tech leaders — most famously, Steve Jobs — had faced the prospect of boardroom fights and exile when times got tough.
- The Valley embraced a "founders know best" ethos and began designing its most successful companies so that founders could keep the reins as long as they wished. (Google's founders, Larry Page and Sergey Brin, may have retired, but together they still own a majority of the company's voting shares.)
Be smart: Markets are supposed to enforce a kind of accountability, but the Google-Facebook model of ownership has created a new class of absolute corporate monarchs.
- Investing in these companies means betting on their leaders rather than actually owning a sliver of control over their destiny.
Our thought bubble: The tech industry's rhetoric is all about empowering individuals and changing the future, but this governance model is positively medieval.
- The human race has plenty of experience with monarchies and the problems that follow when the ruler embraces folly, keels over unexpectedly and/or fails to leave a succession plan.
The other side: Markets, people often complain, force companies to produce results fast and impose a short-term mindset.
- A leadership empowered by Facebook-style super-voting shares is free to take a long view and make big bets that sometimes pay off.
The bottom line: Zuckerberg could get bored with Facebook tomorrow and quit to tend to his billions. Or he could be celebrating a Platinum Jubilee long after many of his elders are dead. It's up to him!