New Facebook Stock Class to Keep Zuckerberg in Driver's Seat

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Facebook on Wednesday announced its board of directors is proposing a new class of shares that will allow its founder to pursue a number of different initiatives while maintaining long-term control over the company.

The news came on the heels of a blockbuster first quarter earnings report.

The plan calls for Facebook to offer non-voting Class C capital stock, which will allow CEO Mark Zuckerberg to pursue his long-term vision, as well as outside philanthropic work, while protecting Facebook from a dilution of voting stock and mitigating risk of a succession plan.

Zuckerberg is committed to the long-term success of the company, he wrote in a note posted Wednesday, and he intends to stay focused on initiatives like growing the use of video, increasing the availability of high-speed Internet around the world, and developing artificial intelligence and virtual reality.

He and his wife Priscilla have pledged to give away the vast majority of their Facebook shares through the Chan Zuckerberg Initiative, he noted, in an effort to better society at large.

"While helping to connect the world will always be the most important thing I do, there are more global challenges that I feel a responsibility to help solve," Zuckerberg said. "Like helping to cure all diseases by the end of this century, upgrading our educational system so its personalized for each student and protecting our environment from climate change."

The company's quarterly earnings report didn't hurt his case. Facebook announced an 87 percent in adjusted first-quarter earnings to more than US$2.2 billion, or 77 cents a share, beating Wall Street estimates.

Shares hit an all-time high of $120.79 on Thursday, before closing at $116.73, an increase of more than 7 percent above Wednesday's close. Shares closed Friday at $117.58.

Facebook's board believes that a large part of the company's success is thanks to Zuckerberg's leadership and that the company will need that leadership to ensure its long term success, wrote General Counsel Colin Stretch in a Wednesday post.

When the company was created, a dual class structure was set up in part to avoid some of the short-term pressures that can be placed on a startup, he explained.

Under the new plan, for every Class A and Class B share owned by an investor, Facebook plans to give out two new Class C shares. The shares will have the same economic rights as Class A and Class B, but the Class C shares will have no voting rights.

The plan will be subject to shareholder approval at the company's annual meeting on June 20; however the actual record date for the payment will be set by the board at a later date, Stretch said.

Class A shares will continue to trade under the FB stock symbol, but Class C shares will trade under a different symbol, following payment of the dividend. Stockholders will be able to continue to trade the Class C shares.

Investors should feel comfortable that Zuckerberg has guided the company on the right path with his pursuit of video and research and development, remarked Brian Blau, research vice president at Gartner.

However, the new stock structure might not be the best long-term move for the company, according to Jim McGregor, principal analyst at Tirias Research.

"Everything goes through lifecycles, including companies and industries, and what you often find is that the management that excels in one phase of the company or the industry life cycle, does not excel in others," he told the E-Commerce Times.

"Is Zuckerberg one of the very few people that can lead the company through multiple cycles like Steve Jobs?" he wondered. "Is he an entrepreneur genius that should be focused on his next startup? Or is he a lucky one-hit wonder?"

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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