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Advisory firm scolds Facebook for Zuckerberg control

Prominent corporate governance organization says Facebook's dual-class stock structure gives CEO Mark Zuckerberg too much control over the company's future.

Facebook is employing a dual-class stock structure when it goes public, and a corporate governance organization is not too happy about it.

Institutional Shareholder Services (ISS), an organization that provides corporate governance services, has criticized the world's largest social network for planning to give CEO Mark Zuckerberg too much control following his company's IPO.

The Wall Street Journal, which obtained a copy of a report filed by the ISS, was first to report on the story.

According to papers Facebook filed with the Securities and Exchange Commission earlier this month, Zuckerberg owns about 28 percent of the social network, but following the IPO, he will hold 57 percent of the company's voting power.

Facebook plans to have two stock classes--Class A and Class B. Class A shareholders--those who will buy the company's stock on the open market--will be allowed one vote per share. Class B stock, which Zuckerberg controls, allows for 10 votes per share.

If Zuckerberg retains more than 50 percent of the power, he can single-handedly make all board decisions and acquisition and merger approvals, regardless of what other Facebook shareholders want.

The ISS is a long-time critic of dual-class stock structures, and has taken aim at other prominent online companies, including LinkedIn and Zynga, for engaging in the same tactic. But the ISS has no power to change things. And there's a good chance Facebook will ignore it.

However, Facebook itself has acknowledged that its classification as a "controlled company," with one person holding over 50 percent of its governance power, is a risk factor that might see Zuckerberg vote "in his own interests, which may not always be in the interests of our stockholders generally."

ISS outcry comes just a week after the California State Teachers' Retirement System (CalSTRS) criticized Facebook for having a small board without any female directors.

"We are disappointed that the Facebook board will not have any women members," CalSTRS corporate governance director Anne Sheehan wrote in a letter to Facebook. "We believe that investors and the company would benefit from a larger, more diverse board."

Facebook has not publicly responded to CalSTRS' letter. The company has also not immediately responded to CNET's request for comment on the ISS statements, and likely won't, since it's observing an SEC-mandated quiet period in preparation for its IPO.