Corporate

Governance
and
Facebook

Nichols
Summer 2019
Learning Objectives

 Team Presentations
 Quick lecture review
 Take a quick look into the Def 14A of Facebook
 Discuss the Corporate Governance Issues at Facebook.
 Conduct a team research and report-out activity on
Corporate Governance.
Concepts from Lecture & Reading
I. Purpose of Business
To create sustainable, long-term value
for stakeholders including, owners,
employees, customers, communities
and suppliers.
II. Company Structure
 Owners/Shareholders
 Board of Directors
 CEO
 Managers
 Employees
III. Role of Shareholders
 No direct involvement in decision-making
 Elect the Board, approve term and
executive compensation
 Approve external auditors and significant
stock transactions
IV. Role of the Board of Directors
 Duty of Loyalty-represent interest of owners
 Duty of Care-Understand the company
 Duty to Exercise Good Business Judgement
 Hire & Fire the CEO
V. Role of the CEO
 Run the company
 Establish strategy
 Role model
 Sets financial and non-financial goals
 Develops leadership talent
3
The Corporation’s Hierarchy of
Authority
Role of the Shareholders
 Represent own interests as Investors.

 Attend annual meetings and elect board of directors and terms of

compensation.

 Approve executive compensation plans.

 Approve external auditing firm.

 Approve significant transactions involving issuance of stock.

 Exert pressure to make companies more responsible through

activism.

 Sue management for violations of a duty of care and duty of

loyalty.
5
Board of Directors- Fiduciary Duties

• Duty of Loyalty – Represent Interest of Owners

• Duty of Care – Understand the Company
• Exercise Business Judgment – Use Experience
• Hire & Fire CEO – Most Important Role
Role of the Board of Directors
Governance and Oversight
 Identify risk and oversee risk management.
 Hire and fire the executives (CEO most important).
 Ensure the integrity of published financial
statements.
 Plan and set executive compensation.
 Protect the interests of shareholders.
 Protect the company’s assets and reputation.
 Ensure compliance with all laws, regulations and
code of conduct policies.
DEF 14A on sec.gov FB
1. When and where is the annual shareholders meeting?
2. What is on the agenda for discussion?
3. If you cannot attend in person, how can you place your vote?
4. What information is given about the Corporate Governance
Structure of the company. Any recent changes in leadership?
5. Who serves on the board of directors? What are their
qualifications? What can you tell about their level of diversity—
gender, race, ethnicity, etc.
6. How many directors are independent? Indicate which directors are
“inside” directors and which directors are “outside” directors.
7. What do you notice about executive compensation? Does the pay
for the executives and directors seem in line or out of line to you?

8
Duty of care?
 Why did the shareholders of Facebook file a lawsuit in 2014?
 Who are the nonexecutive directors?
 How much was Facebook paying the nonexecutive directors?
 What portion was salary and what portion was stock offering?
 Why was this a problem?
 Do you believe that directors have the right to approve their
own compensation without shareholder vote and approval?
 Excessive director compensation at
facebook?

Design. Our executive compensation program continues to be heavily weighted towards equity, in particular restricted
stock units (RSUs), with cash compensation that is generally below market relative to executive compensation at our
peer companies. We believe that equity compensation offers the best vehicle to focus our executive officers on our
mission and the achievement of our long-term strategic and financial objectives, and to align our executive officers
with the long-term interests of our stockholders. ( DEF 14A 4-14-2017 )
Reading between the lines?
 Why do you suppose Mark Zuckerberg did not seek a shareholder
vote for the Facebook stock grant to Jan Koum worth $1.9 billion?

 How much is Zuckerberg’s ownership of Facebook?

 Did Zuckerberg break Delaware law by his action? Do a quick search

and see what happened with the lawsuit.

 What is an appropriate level of director pay? Do you believe the

compensation of the nonexecutive directors of Facebook was
excessive?

 What do you believe contributes to the high pay of corporate

directors?
Current state of affairs?
 What is the current state of the relationship between
Zuckerberg and the Board of Directors?
 Do you believe that one person can be effective in
holding the role of both the CEO and the Chairman of
the Board?
 Given the call for protection for ones’ private information
but the need to be connected socially at all times, what
do you see as the future for social media?

12
Team Exercise

 Make a list of attributes that are important in a CEO.

 Research and select a CEO in the business world that
exemplifies the attributes you listed. Try to choose a
CEO that reflects diversity, independence, and has
shown a commitment to corporate social responsibility
and/or stakeholder engagement.
 Create two (2) slides introducing the CEO to the class
and discussing this CEO’s accomplishments.