CHICAGO – Facebook’s turmoil, controversy, and governance failures are among the litany of reasons the social media giant needs an independent board chair, Illinois State Treasurer Michael Frerichs said today. Frerichs leads a group of institutional investors who filed a proposal to separate the Chief Executive Officer (CEO) and board chair roles at Facebook, which are held by Mark Zuckerberg. The proposal will go before a vote at Facebook’s 2021 Annual Shareholder Meeting.
“Too much control given to one person is not a good model for any company and Facebook has shown us over and over again the risk it carries for its users and investors,” Frerichs said. “An independent board chair is an important step forward to provide real oversight over management, address governance failings, help restore trust in the company, and better protect shareholders’ interests. We hope the company will use this as an opportunity to take a decisive step toward building a more successful, sustainable company for the long-term.”
Filing alongside Frerichs are the Pennsylvania State Treasurer, Rhode Island State Treasurer, Vermont State Treasurer, Green Century Funds, and the Sisters of the Holy Names.
“Mark Zuckerberg needs to answer to an independent board and be held accountable when his decisions hurt Facebook users,” Pennsylvania State Treasurer Joe Torsella said. “Taxpayers, Facebook users, and shareholders deserve more and better from a company that has become such an important part of our culture, particularly as we fight COVID-19 and feel more distanced and isolated from loved ones than ever before. For years, shareholders have made their choice loud and clear and called overwhelmingly for an independent voice at the head of the Board of Directors. Until Zuckerberg makes the decision to do right by the company and Facebook’s billions of users, Facebook will continue down a path of damaging public trust and long-term value. It’s time for him to step aside.”
“Facebook leadership continues to demonstrate poor judgement on a range of issues, from pursuing anticompetitive business practices to failing to adequately address the use of its platform by extremist groups that incite violence,” said Rhode Island General Treasurer Seth Magaziner. “It is past time to separate the roles of CEO and board chair in order to strengthen Facebook's accountability to shareholders and to society at large.”
“Separating the positions of board chair and CEO will create independence to hold management accountable and best serve both the company and its shareholders,” Vermont State Treasurer Beth Pearce said. “A company that has faced this level of criticism for its handling of private data, human rights, and foreign government intervention needs stronger leadership.”
Major institutional investors, including Vanguard, MFS, AllianceBernstein, BNY Mellon, Goldman Sachs, JPMorgan and Putnam voted in support of a similar 2020 shareholder proposal, signaling a need for leadership change and an independent board chair to lead Facebook. These mutual funds joined the supermajority (63.78%) of Facebook’s outside shareholders who voted against Mr. Zuckerberg’s unified power as both CEO and Chair. This vote sends a clear message that many investors see the need for real oversight and governance reforms. Unfortunately, Mr. Zuckerberg and other Facebook insiders control a majority of the voting shares at the company.
“What more will it take for Mark Zuckerberg to recognize that he’s failing in an important area? I think it is clear – to all, other than perhaps Mr. Zuckerberg – that Facebook needs governance reform and enhanced oversight,” said Green Century Capital Management President Leslie Samuelrich. “It is time for Mr. Zuckerberg to recognize that he can no longer serve as both CEO and Chair of Facebook.”
Evidence continues to show that having the same individual in the position of board chair and CEO is deeply problematic. An article posted by the Harvard Law School Forum on Corporate Governance noted that when “all authority is vested in one individual; there are no checks and balances…presenting an obvious conflict of interest.” For example, in PWC’s 2019 annual director survey, 57 percent of directors who sit on a board with a unified chair/CEO reported it is difficult to voice dissent.
In addition to the criticism related to election interference, anti-trust accusations, data breaches and privacy incidents, a recent whistleblower complaint to the Securities and Exchange Commission alleged Facebook is aware of illegal activity, including opioid sales on the platform. Facebook’s failure to disclose illegal sales is a violation of fiduciary duty to investors. The failure to prevent abuse, deception and harm on the platform is exacerbated by the lack of independence on the board, particularly in the board chair position.
The company’s responses to significant problems have been inadequate, and the board has been unable to exercise effective oversight of management and balance growth with long-term sustainability. This separation would benefit investors by providing Zuckerberg the time and
attention to devote to his role as CEO and director, separate from an independent board chair who would be able to act as fiduciary on behalf of long-term investors.
Last week, Illinois Attorney General Kwame Raoul joined a bipartisan coalition of 48 attorneys general to file a lawsuit against Facebook Inc., alleging that the company illegally stifles competition to protect its monopoly power. Separately, but in coordination with the multistate coalition, the Federal Trade Commission (FTC) also filed a complaint against Facebook in the U.S. District Court for the District of Columbia.
