Facebook Inc ($FB) – Proxy Score 9

Facebook Inc ($FB) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/11/2013. ProxyDemocracy.org had collected no votes when I checked on 6/5/2013.  I voted with management 9% of the time.  View Proxy Statement. Senator Warren recently called on the exchanges to block companies with unequal voting structures from listing. Too bad that didn’t happen years ago.

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003. Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime)

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

FB’s Summary Compensation Table (page 26, the links aren’t very good) shows Sheryl K. Sandberg, COO, was the highest paid named executive officer (NEO) at about $26.2M in 2012.  I’m using Yahoo! Finance to determine market cap ($55.4B) and Wikipedia’s rule of thumb regarding classification. FB is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9 & 10), using data from Equilar, the median CEO compensation at large-cap corporations was $10.8 million in 2010. FB’s pay is well above median when we factor inflation.  Therefore, I voted against the pay package, bond plan, and members of the compensation committee, as well as the rest of the board for reasons given below.

Since May 22, 2012, director Peter Thiel has sold off 80% of his stock for more than $1 billion. Mark Zuckerberg also sold more than $1 billion in shares. If they are selling, should we?

Last month, Facebook posted a fifth consecutive quarter of declining revenue growth. At $1.18 billion, second quarter revenues were down 45% from the prior quarter. Top executives have been leaving since FB went public. The board has outside “independent” members but most seem to be initial funders, or they have contractual relationships with the company. 

Our company was criticized for a lack of diversity, so COO Sheryl Sandberg was put on the board. That’s not the type of diversity that adds much value, since as the COO, she should already wield considerable influence.  Two inside directors, two large investors, and four more directors with related party transactions or relationships to Zuckerberg himself. What director is looking out for us, the regular outside investors?

Zuckerberg controls 61% of the votes, so mine won’t make much difference but I’ll be voting against the board because I want each share to carry the same voting weight. At the company’s IPO, Zuckerberg exercised 60 million options for a profit of $2,276,400,000, an amount equal to the market-cap of more than  2000 of the Russell 3000. How about spreading a little of that wealth to shareowners?  It may not ever happen unless we have a voice on the board. 

Facebook is having a “shareholder forum” prior to the meeting. Try asking a question and getting an answer or try talking to another shareowner. Their forum is much like their elections. Dictatorships can get the trains running on time but sooner or later there will either be a shareonwer’s spring or a better Facebook. I’m betting more on niche-market social media like LinkedIn and Sharegate.  Let’s hope Zuckerberg grows up, before it is too late.

How I voted (CorpGov) below:

You may present proposals for action at a future meeting or submit nominations for election of directors only if you comply with the requirements of the proxy rules established by the SEC and our amended and restated bylaws, as applicable. In order for a stockholder proposal or nomination for director to be considered for inclusion in our proxy statement and form of proxy relating to our annual meeting of stockholders to be held in 2014, the proposal or nomination must be received by us at our principal executive offices no later than December 27, 2013.

  Looking at SharkRepellent.net, FB has a Plurality vote standard to elect directors with no resignation policy. When the outstanding shares of Class B common stock represents less than 50% of the combined voting power of common stock, the board shall be classified with staggered terms and no action can then be taken without a meeting by written consent.

Facebook, Inc.’s ISS Governance QuickScore as of Jun 1, 2013 is 9. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 6; Compensation: 10. One is good; 10 is bad. Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosure.  I’d say let’s meet on Sharegate to plot the overthrow but the kid owns the ball. We’re at his whim. So far, he shows no signs of wanting advice from shareowners or of growing up.

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