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Investor activists see little to ‘like’ in Facebook

Feeling dissed: Many say firms like Facebook have put in shareholder-unfriendly rules

Written by Reuters | New York | Published: February 10, 2012 1:21:19 am

A new crop of companies entering the US public markets,including such high-profile offerings as Facebook,are turning the clock back on the way US corporations are run. Facebook,Groupon Inc,LinkedIn Corp,Zynga Inc and others have put in place governance provisions that go against a long-term swing towards more shareholder-friendly rules.

One stark example of this reversal is in the number of companies that have classified or staggered boards,where only a handful of directors come up for election each year rather than all of them,making it hard for an activist investor or unwanted suitor to take control of the board through a proxy context.

Another is the creation of dual-class stock structures,which allow founders and early investors to gain greater voting control than their economic interest would otherwise suggest.

In the past 10 years,many of the biggest publicly traded companies in the US have been getting rid of such provisions. Currently,for example,only about 24 per cent of S&P 500 companies have classified boards,down from 61 percent in 2002,according to FactSet SharkRepellent. But there hasn’t been such a significant change among new arrivals. Of the 76 companies that went public last year,nearly 65 percent had classified boards. In 2002,82 percent of IPOs had the feature. Of the eight high-profile IPOs in the social networking and new media space last year,all either had classified boards or dual-class structures,with some having both.

While new firms are generally more likely to seek protections against corporate raiders and activist hedge funds,the extent of the barriers and some of the actions taken to shore up defenses are being questioned,especially given the high-profile nature of some of the companies involved. It has some major investors feeling dissed.

Zuckerberg barred from working for rival
Facebook founder and CEO Mark Zuckerberg,along with his three top lieutinants,will get about $2 million in just salaries and bonuses,but cannot work on creating a rival to the social networking giant. This has been disclosed in Facebook’s amended registration document for its upcoming IPO,filed with the US market regulator Securities and Exchange Commission (SEC) last night. As per Zuckerberg’s employment agreement with Facebook,his job can be terminated “at any time for any reason or no reason”,either by him or by the company. PTI

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