Facebook's about-face is only partial victory

(Sept 26): Mark Zuckerberg’s withdrawal of plans to excrete an inferior class of Facebook shares onto the investing hoi polloi should go down as an extraordinary moment in contemporary American capital markets. But the social network founder’s climbdown is not an unalloyed victory for democratic capitalism. Facebook is facing other, existential, challenges that almost certainly rendered Zuckerberg’s decision an expedient one. The battle to instill better corporate governance at Silicon Valley’s titans will continue to rage.

This is not to diminish the import of Zuckerberg’s Friday-night drop. The world’s sixth-richest man caved on a plan that would have allowed him to retain control of the US$470 billion ($635 billion) company even while selling his own shares, most of which carry 10 votes apiece, to fund his worthy philanthropic ambitions. Now, he says, thanks to Facebook’s recent stellar stock-market performance, he doesn’t need to adopt an even more feudalistic ownership structure for his dorm-room creation. That, he said, is why he asked his board to abandon the proposal.

However reached, it is the right decision. When the new stock plan was put to a vote, some 80% of minority shareholders – who actually lay claim to a majority of the company’s economics - rejected it. Although Zuckerberg was able to override them with his more than 400 million Class B shares, an incontrovertible message was delivered. It’s the same spirit that recently inspired the arbiters of the S&P 500, America’s most influential stock benchmark, to no longer admit companies that violate the one-share, one-vote principle.

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