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Does Facebook’s Zuckerberg Have Too Much Power?

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Google (GOOG), LinkedIn (LNKD), Zynga (ZNGA), and, coming soon, Facebook (FB): four companies among the "new breed," where shareholders have effectively no rights other than the chance to ride along with the founders. This model—taking shareholder money without actually surrendering any power—isn't new, but it's becoming more brazen.

In light of Facebook's S-1 (which explicitly states that Mark Zuckerberg has the right to bequeath his voting control to whomever he so chooses) and Google's recent stock split (which actually increased the controlling interests of its founders), it seems there's a growing trend of business founders have their company and selling it too.

"There's a generational shift, where a lot of innovation is coming from young people," says Michael Eisenberg of Benchmark Capital, pointing out that Zuckerberg was 19 years-old and the Google guys were in their early 20's when starting their companies. "They have a pace of innovation which is fundamentally different from most of the corporations we see in America or the world today."

The people with the ability to innovate have all the power. These entrepreneurs are exercising that power by issuing shares as a take-it-or-leave-it proposition. Investors have no obligation to buy shares, but if you do it's on the company's terms.

As Eisenberg says, if you own these stocks "you're along for the ride." Nothing more; nothing less.

In return for yielding control, investors get faster companies that are able to capitalize on opportunities that might, otherwise, be lost. "Taking too little risk leaves you at a greater risk to be disrupted by the next two guys in a garage somewhere else."

Disruption is what Research in Motion's (RIMM) Blackberry did to Motorola and then fell victim to the hands of Apple's (AAPL) iPhone. It's a shift that leaves existing players gasping for air, obsolete and enfeebled.

"The broader trend here is a generational gap between young and fast versus old and slow," says Eisenberg. Embracing youth and erring on the side of risk is why there wasn't boardroom revolt when Zuckerberg paid more than $1 billion for Instagram. Zuckerberg thought Instagram could either add value as part of Facebook or become a potential threat—so he simply bought them.

The Facebook co-founder and CEO reportedly didn't even bother to consult his board about the Instagram acquisition; not that the board would have had any say in the matter even if he had.

Eisenberg says it's "an inversion of the pyramid" in which aged chieftains sit on the throne of power surrounded by youthful drones hoping to replace them. In the new model, L'enfant terrible dictates while his elders curry favor.

Ultimately there are checks to absolute power—even for the Zuckerberg et al, says Eisenberg.

"The first check on power is innovation." Become lazy, and all the voting power in the world won't save you. There was always a faster gun in the old west, and there will always be a better app today.

"The second check is a discussion of values," Eisenberg concludes. CEO's aren't dictators. Underlings can leave and the stock market is open five days a week. If these youthful kings start acting "evil" (as the Google kids once famously said), they will find themselves alone and despised, which is a bad place to be, no matter how large your palace is.

Are young CEOs holding too much power over shareholders? Let us know your thoughts in the comment section below or of course, visit us on Facebook.

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