Facebook's plea to Zuckerberg: Be gentle, be wise

Post-IPO, Mark Zuckerberg's control over Facebook and its board of directors will border on the absolute. It's good indeed to be the king.

James Martin/CNET

So far, Mark Zuckerberg has been making nearly all the right moves. Sure, there were celebrated flubs such as the Beacon fiasco and that nasty double-cross where Facebook deceived consumers after promising them they could keep their information on Facebook private.

However, those were the rare missteps for a CEO who has brilliantly overseen the growth of a remarkable franchise. Rival tech companies will be green with envy when they read that Facebook more than quadrupled its net income in the last three years -- and this during one of the worst economic stretches since the Great Depression.

So what's not to like?

Not much. But amid all the Facebook frenzy, consider this: Because of the circumstances surrounding Zuckerberg's control - he owns about 28 percent of the company and 57 percent of its class B stock -- Zuckerberg remains first among non-equals by such a wide margin that it qualifies as a risk factor according to Facebook. The Facebook prospectus spelled out the obvious:

"So long as the outstanding shares of our class B common stock represent a majority of the combined voting power of our common stock, Mr. Zuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company."

That means he retains final say over day-to-day affairs as well as the election of individuals to the company's board of directors. Zuckerberg consummated an unknown number of side deals with "certain stockholders" -- the S1 doesn't get more specific -- so he will be able to maintain majority voting power long after Facebook's initial public offering.

This is the kind of power CEOs dream about. Regardless of the board's wishes, Zuckerberg will be the final arbiter on any decision about mergers, consolidations, or the jettisoning of all or part of Facebook's assets. Also, the prospectus notes that Zuckerberg "has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor."

Just think: Even the ghost of Zuck will have more power than the company board of directors.

As a Mel Brooks character famously said in "History of the World: Part I," it's good to be the king. Facebook is just hoping he'll be a wise king. There's nothing to suggest that his personal interests won't remain aligned with Facebook's longer term best interests. But circumstances can change and sometimes company founders wander off the reservation. (See: Jerry Yang and Yahoo shareholders for more.)

At that point, though, there really wouldn't be much that Facebook could do other than to de-friend Zuckerberg online.

Facebook's finances

Facebook has finally opened up its books. What do you think?

 

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