- Last Updated: 11:17 PM, April 21, 2012
- Posted: 10:53 PM, April 21, 2012
Some call them the Boy Wonders — Larry Page and Sergey Brin, Mark Pincus, Andrew Mason and Mark Zuckerberg — but if you’re a shareholder in their companies, you are a depreciating asset.
That’s because if you are an investor in Google, Zynga or Groupon, or waiting with bated breath for the Facebook IPO, these young executives, in the ultimate consolidation of greed and power, have been trampling all over shareholders’ voting rights.
These Billionaire Boys have kept all but total control of their companies while selling large portions of their holdings to the public.
In Facebook’s case, its initial public offering may be next month. The way it works, the company will sell billions of dollars’ worth of stock to the public, while still leaving Zuckerberg holding 28 percent of the shares but 58 percent of the voting power — not a bad deal if you can get it.
Sharing some properties of the element silicon, which can be very slippery, these Valley denizens have rigged the game so as to relegate outside shareholders to peon or Muppet status.
Case in point: Zuckerberg spent $1 billion for Instagram without board or private shareholder approval, just weeks before coming public.
This has reportedly ruffled a few feathers on the board and among many of Facebook’s Wall Street bankers and potential institutional investors, because it highlights the impulsiveness and freewheeling nature of these Silicon Valley tycoons.
In Google’s case — which is very interesting because it is already a public company — the search giant will issue new shares to shareholders who will no longer have voting rights; it will be dressed up as a 2-for-1 stock split, so investors will receive an equivalent dollar value, but the value of a vote that was embedded in the shares will no longer be there.
The split effectively freezes, or maintains for the very long term, the 58 percent of the voting rights to founders Brin and Page. So they maintain their voting power in the company even if they sell stock or the company issues more shares, so long as they keep their special class of founders’ voting stock. The “Do No Evil” twins sure are sticking it to Main Street on this one.
The irony in all of this is that at a time when shareholder rights and votes apparently mean very little to the hypocritical Bay Area crowd, it’s mostly New York’s biggest companies that are respecting shareholders — the big banks, no less!
Goldman Sachs acquiesced to putting an independent director in charge of the board as “lead director” in order to stave off a shareholder vote on splitting the chairman and CEO roles.
In Citibank’s case, after proposing a large pay package for CEO Vikram Pandit of $15 million plus a huge retention bonus, shareholders had their “say on pay” and voted down the package, 55 percent to 45 percent. While many say this was more a reflection on Citi and Pandit’s performance than on the absolute numbers, it is unusual.
The reason you need your shareholder’s vote is exemplified by Mason’s Groupon disaster. The company, which just went public a few months ago, has already had to issue “a statement of material weakness in its controls” and is now embroiled in numerous shareholder lawsuits — not to mention a plunging stock price.
So while the Silicon Valleyites are busy selling their incredible accomplishments to Main Street in the form of stock, just remember they are going public to make a lot of money by selling some of their shares to you — just without the vote.
And while that may seem fine in this fleeting moment when nearly everything coming out of Silicon Valley is inflated, the ability to vote is part of what investing in America is about.
The pilfering of shareholders’ rights is not.