A big potential investor in the Facebook IPO, the California State Teachers Retirement System, has sent a letter to the company complaining about the amount of voting control in the hands of Facebook's 27-year old founder, Mark Zuckerberg.
Like other media-tech moguls, Mark Zuckerberg has decided to keep control of his baby, even while the company sells shares to the public. The class of stock that Mark Zuckerberg owns carries greater voting rights than the class of stock the public will own, giving Zuckerberg disproportionate control relative to the size of his stake in the company.
This is the same strategy that the founders of other hot tech companies like Google have used, and it has long been a technique used in the media industry: Rupert Murdoch, for example, controls a lot more of News Corp. than his financial stake would imply.
So, is this a horrible abuse of power?
No, says Rob Cox, the U.S. editor of Breaking Views. The control is clearly spelled out in the prospectus for the stock offering, and investors who don't like the fact that one share does not equal one vote can always pass on the stock.
All else being equal, though, Cox adds, the stock should trade at a discount to where it would trade if shareholders had the usual level of control.
And what about the California teachers pension system? Will their angry letter cause Facebook to change its tune?
Of course not, Cox says. CALSTRS probably sends the same letter to every company that employs the dual-class of stock system. But Facebook investors should at least realize that they're not getting the voting control that they're accustomed to getting and factor that into their purchase decision.