Gongol.com Archives: October 2021
October 6, 2021
Between friends, that's not how we operate
One of the legal protections sheltering Facebook whistleblower Frances Haugen as she testifies to Congress is the regulation that permits a person to come forward to the SEC with proprietary company information if that information covers "conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors". In this case, Facebook's behavior appears to meet that test. ■ But disclosure is a really strange thing in Facebook's world. Most of the time, it's assumed that shareholders in a company also have a vote in how the company is run. But that's not how it works at Facebook. Mark Zuckerberg's voting control over the company is absolute. He is, in effect, an absolute monarch. (This is a long-known bug in Facebook's corporate programming.) ■ Consequently, while information may be of material interest to shareholders in terms of their ability to determine the fair price at which to buy and sell the shares, anyone holding Facebook shares has surrendered the right to have an interest in how the company is being run. To do so is a foolish choice, and the current circumstances illustrate why. ■ The mythology of the founder is strong in American corporate management, especially in high technology. Bill Gates, Steve Jobs, Jeff Bezos, Elon Musk, Mark Zuckerberg -- all founders, and all household names. Few people know the founders of insurance companies, truck-stop empires, and ceramics importers. Certainly, some founders have established great companies and grown them through exceptional vision and understanding of the marketplace. In exchange for their visions, they sometimes insist that everyone else (investors, customers, and employees alike) must go along for the ride. ■ But rare is the person who can adequately anticipate every risk or understand the third- and fourth-order consequences of their own actions. Good decisions generally require robust debate. And Mark Zuckerberg has established boundaries around Facebook to shelter him entirely from that debate (and go sailing instead). ■ It's not far-fetched to imagine Facebook's lawyers arguing that disclosure of the type of information revealed by the whistleblower doesn't doesn't have any material impact on any choice that an individual shareholder could make. As long as Mark Zuckerberg knows everything he deems necessary to know about what's happening inside the company, including unflattering internal research, then shareholders who have effectively surrendered their right to vote must assume that he knows enough to make company decisions for them by proxy. ■ That assessment, of course, is utterly bonkers: No shareholder should surrender that kind of authority to some kind of god-king at the helm of a company. Yet, Facebook shareholders have done effectively that. ■ The consequences have been manifest. Mark Zuckerberg runs Facebook the way he wants, in a way no titan has run any media organization before. The ghosts of Paley, Sarnoff, Hearst, and Pulitzer must be green with envy. Perhaps the financial returns from a Facebook investment have been just too mouth-watering for investors to overlook. But it also means that there is no ethos or soul to the company beyond that of the general partner running the investment. Whether Zuckerberg has ever seen the company as a partnership, though, is an entirely different matter. ■ Warren Buffett has always represented his conglomerate, Berkshire Hathaway, as a conscious partnership between himself and his investors. While, like Facebook, Berkshire has also been largely under the voting control of one individual and his immediate orbit, Buffett has for decades recited as his number-one principle that "Although our form is corporate, our attitude is partnership." While his execution may have been imperfect, that philosophy -- one of maximum transparency with the founder's co-owners, including family and close friends -- treats even the "limited" partners as intelligent, curious beings. Paradoxical, indeed, that Facebook, which says it is all about friendships, is run as though no one else in the partnership is truly a friend.
