Several shareholders have sued Facebook, contending that the social media giant moved to alter its capital structure to keep CEO and founder Mark Zuckerberg in control of the company. And the firm did so through a series of actions that, as reported by the Wall Street Journal, show alleged “conflicts of interest.”
The WSJ reported that the company was asked by Zuckerberg earlier this year to create a block of non-voting shares in the company and award them to him, allowing him to keep control of the firm. In the wake of his request, Facebook formed a three-member committee to explore the proposed capital plan.
And as the plaintiffs allege in court documents filed in Delaware and recently unsealed, once that committee got under way, Morgan Stanley, which had been in the process of advising Facebook on the plan, then “pulled the strings behind the scenes” to convince those advisers to at least alter parts of the proposal that might have been deemed “unfavorable” to Zuckerberg.
The three members of the special committee included Susan Desmond-Hellmann, chief executive of the Bill and Melinda Gates Foundation; Erskine Bowles, who served in the White House; and Marc Andreessen, venture capitalist at Andreessen Horowitz and Facebook board member.
The adviser hired by the committee was Evercore Group, while Morgan Stanley gave advice to senior Zuckerberg advisers. But, alleged the suit, Morgan Stanley held some cachet with those advisers, pushing a plan for Facebook non-voting stock like a structure the bank had proposed for Google parent Alphabet two years ago. Under Zuckerberg’s plan, he wanted to give 99 percent of his wealth to the Chan Zuckerberg Initiative LLC, which donates to nonprofits and makes investments in public initiatives such as education. Zuckerberg had also signaled his desire to work for the government for two years while maintaining control of Facebook.
That capital plan was subsequently approved by the eight-member Facebook board in April of this past year. The plaintiffs, Bloomberg reported, include individual investors and pension funds.
In another set of communications, Andreessen sent Zuckerberg text messages on ways to sway the other directors, the court filings allege, to accept the capital structure revision and also Zuckerberg’s desire to move into a government role. And, said the investor suits, by changing the capital structure and doing so with what are alleged to be “covert dealings,” Facebook wound up being disloyal to its own shareholders.