Breakingviews: Zuckerberg motivates supervoting stock resistance

Mark Zuckerberg is providing fresh motivation for investors everywhere. The Facebook founder’s unwavering commitment to keep investing in the metaverse as his company’s mainstay social-media businesses suffer sent shares in Meta Platforms tumbling more than 20% on Thursday. It has now vaporized more than $600 billion in market value this year. If there was ever a time for shareholders to rally against the sort of dual-class structures that surrender control to entrepreneurs, Zuckerberg has provided the ammunition.

When Facebook went public a decade ago, it had more than enough believers to grant the Harvard University dropout an iron grip on his dorm-room creation. At the time of the stock sale, Zuckerberg commanded 57% of the vote with just a 28% economic stake, subjugating other owners with supervoting shares that carry 10 votes apiece. The capitulation paid off, until it didn’t.

Zuckerberg and his second-class shareholders no longer see eye-to-eye on the strategy. Meta feels the need to reinvent itself, changing its name last year to reflect the new ambitions. As operating profit nearly halved in the third quarter, the company said on Wednesday that it would keep investing more than $100 million a day, most of it on virtual reality initiatives. Back in the real world, plummeting shares will demoralize existing staff and prospective recruits. The only way for unhappy investors to express displeasure is to sell.

Meta reckons its board is sufficiently independent to keep watch over Zuckerberg, despite his codified influence over it. His sway also inspired imitators across Silicon Valley. Since 2012, the proportion of technology companies going public with dual-class shares has rocketed from 15% to 46%, according to research out of the University of Florida. Amazon.com founder Jeff Bezos and Tesla boss Elon Musk are now outliers for not demanding feudal levels of control.

Investors have shown signs of resistance. Some index providers exclude companies with multiple classes of shares. The broad selloff in tech stocks this year, however, should give money managers greater negotiating leverage when the next wave of initial public offerings rolls around.

Even if prospective buyers are supportive of a startup and its leader, Zuckerberg is a reminder this won’t necessarily always be the case. Rejecting supervoting stock would be the best option. Failing that, investors could insist on sunset clauses that phase out the special powers over, say, a decade. Some bosses have found ways to weasel out of those provisions. But insisting on an end date would begin to redress the balance between entrepreneurs and providers of capital.

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