Mark Zuckerberg abandons share plan

Facebook's Mark Zuckerberg
Facebook's Mark Zuckerberg
Mark Zuckerberg, facing the threat of a lawsuit, backs off plan to issue non-voting Facebook shares.

The richest and most powerful business people certainly aren’t immune to lawsuits, or to shifting their plans in the face of in the face of them. Just ask Facebook CEO Mark Zuckerberg.

The fifth-richest person in the world, facing the threat of a complex lawsuit from shareholders, has abandoned plans to issue a third class of Facebook shares.

Zuckerberg has total control over Facebook, thanks to his ownership of 60 percent of its shares. At the same time, he and wife Priscilla Chan have committed to giving away 99 percent of their wealth and most of that wealth is tied up in the shares that give him control over the company.

In order to fund the charitable Chan Zuckerberg Initiative while holding onto control of the company, Zuckerberg had planned for Facebook to offer Class C shares that would have the economic benefits of other shares, but not the voting rights. That way, he would have been able to sell a few billion dollars worth of shares without giving up power over the company he founded. As he wrote in a Facebook post:

At the time, I felt that this reclassification was the best way to do both of these things. In fact, I thought it was the only way. But I also knew it was going to be complicated and it wasn’t a perfect solution.

It was far from perfect, as a matter of fact, and resulted in the threat of a class action lawsuit on behalf of current shareholders.

The good news, though, is that the price of Facebook shares has appreciated so much that Zuckerberg will still be able to sell enough shares to fund the Chan Zuckerberg Initiative and hold onto control of the company, without issuing the new class of shares.

As Zuckerberg writes:

Over the past year and a half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more. As a result, I’ve asked our board to withdraw the proposal to reclassify our stock — and the board has agreed.

But the entire saga illustrates the kind of complex legal issues that businesses often face and that PPK specializes in.