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Facebook investors criticize Andreessen for conflict of interest

SFGate Saturday, 10 December 2016
The monumental shift would benefit Zuckerberg because it would let him sell shares to fund philanthropy, but it had the potential to harm investors by diluting their power over decision making. The company went through the motions of protecting minority shareholders, but one board member seemed more interested in protecting Zuckerberg, investors allege. In the new arrangement, the nonvoting shares are less attractive as currency in acquisitions and may make it harder for Facebook to get tax benefits, among other issues. The question was put to a vote by shareholders, but there was never any doubt about the result. Since Zuckerberg has majority voting control, what he favors wins the day. In August 2015, with the CEO’s blessing, Facebook’s board set up a committee, choosing the three directors who were least beholden to Zuckerberg or financially affected by the decision — Susan Desmond-Hellmann, Marc Andreessen and Erskine Bowles — to represent shareholders while weighing the matter, according to a regulatory filing. The documents include the transcripts of private texts between the two men, revealing the inner workings of the board of directors at a pivotal time for Facebook. While the committee grilled Zuckerberg about why he wanted a special class of stock, Andreessen sent the CEO text messages to explain which of his arguments weren’t working and why, according to messages quoted in court filings. The plaintiffs suing Facebook’s board include pension funds, like the Employee Retirement System for the city of Providence, R.I., and individual investors. If Andreessen played both sides of the negotiation, it means minority shareholder interests weren’t properly represented by the committee, said Larry Hamermesh, a Widener University law professor who specializes in Delaware corporate law and governance issues. Keeping a controlling and visionary founder happy can lead to the high-risk, high-reward efforts that keep companies thriving, said David Larcker, a legal professor focusing on corporate governance at Stanford’s Graduate School of Business.
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News video: Facebook Investors Sue Over Alleged Conflict of Interest

Facebook Investors Sue Over Alleged Conflict of Interest 03:40

Dec.09 -- Techonomy Media CEO David Kirkpatrick and Bloomberg’s Brad Stone discuss a lawsuit in which Facebook shareholders say venture capitalist Marc Andreessen was advising Facebook's CEO Mark Zuckerberg when he was supposed to be representing investors. They speak with Bloomberg’s Caroline...

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