Shareholders are trying to fire Mark Zuckerberg as chairman of Facebook because of the social media giant's 'mishandling' of recent scandals, including the Cambridge Analytica data saga, Russian meddling in the US election and fake news.
Investment company Trillium Asset Management, who has about $11 million in Facebook stock, filed a proposal on Wednesday to break up Zuckerberg's role as both chairman and CEO, Business Insider reports.
The proposal argues that shareholders are unable to check Zuckerberg's power given he holds roughly 60 percent of Facebook's voting shares as both chair and CEO.
'A CEO who also serves as chair can exert excessive influence on the board and its agenda, weakening the board's oversight of management,' the proposal states.
'Separating the chair and CEO positions reduces this conflict, and an independent chair provides the clearest separation of power between the CEO and the rest of the board.'
The investment company says this oversight has contributed to Facebook 'missing or mishandling' several 'severe controversies' in past years, which they say increases risk exposure and costs to shareholders.
The specific examples the shareholders used include: Russian meddling in US election, the sharing of 87 million users' personal data with Cambridge Analytica, proliferating fake news and social unrest in Myanmar and Sri Lanka.
Chances of Zuckerberg's roles being split remain slim given Facebook has rejected similar shareholder requests in the past. A proposal last year to oust Zuckerberg as chairman received 51 percent of the votes.
The push to split Zuckerberg's role into two comes as the social media giant continues to face concerns, including:
- Shares plummeting by some 21 percent, wiping out an estimated $150 billion in market value
- European privacy rules that went into effect in May, which partly resulted in Europe users dropping from 377 million to 376 million
- Fallout from Cambridge Analytica scandal in which personal data from 87 million Facebook users was collected, prompting several apologies from Zuckerberg
- Facebook’s new video feature allowing Infowars on its platform, despite it peddling conspiracy theories including that Sandy Hook was a hoax
- Zuckerberg was also called on to remove harassing comments from Sandy Hook conspiracy theorists directed at the parents of victims
News of the proposal came just hours after Facebook shares went into a freefall on Wednesday as a stunningly weak financial outlook raised fresh concerns for the social networking giant.
After-hours trade saw Facebook shares plunge by some 21 percent, wiping out an estimated $150 billion in market value. If the share drop holds on Thursday, it would be Facebook's largest single-day decline, topping a 12 percent decrease in July 2012.
Zuckerberg's personal wealth also took a hit with him losing nearly $20 billion in just two hours. He saw his net worth tumble by $18.8billion, a record drop, in after-hours trading, taking him down four spots in Forbes' World Billionaires List.
He woke up as the fourth richest person in the world with an $82.4 billion net worth on Wednesday, but was in the eighth spot by the end of the day.
Facebook's monthly active user count was 2.23 billion, slightly behind the 2.25 billion forecast by analysts. Users in Europe dropped from 377 million to 376 million, partly as a result of the new General Data Protection Regulation (GDPR) rules.
The second-quarter results were the first sign that the new European privacy laws and a succession of privacy scandals involving Cambridge Analytica and other app developers have bit into Facebook's business.
Facebook executives made investors even more nervous when they warned of further revenue deceleration in a call with analysts, citing efforts to address concerns about poor handling of users' privacy and to better monitor what users post.
CFO David Wehner said Facebook expects to see high-single digit drops in year-over-year revenue growth during the next few quarters.
He cited the new GDPR rules, user privacy controls and currency headwinds as factors contributing to the deceleration.
Wehner reiterated that GDPR didn't have a significant impact on revenues because it was implemented toward the tail-end of the quarter, but he said that could change in the coming quarters.
'We do think there will be a modest impact and I don't want to overplay these factors,' Wehner said in the call with analysts.
'... We're continuing to focus our privacy model around putting privacy first. We believe that will have some impact on revenue growth. It's really a combination of how we're approaching privacy and GDPR and the like. All those factors together are... (things) we're considering.'
The Cambridge Analytica scandal prompted several apologies from Zuckerberg and generated calls for users to desert Facebook, which has grown strongly since launching as a public company in 2012.
Ad sales in Facebook's second quarter rose 42 percent to $13.04 billion but the costs, bolstered by moves to improve content and security after the data scandal, rose 50 percent from a year earlier to $7.37 billion.
Total revenue rose 41.9 percent to $13.23 billion, while Wall Street was looking for revenue of $13.36 billion.
Ahead of the announcement, industry experts had predicted that the number of active users visiting the social network would either drop or flat line.FACEBOOK EARNINGS IN FIGURES
Daily active users (DAUs) – DAUs were 1.47 billion on average for June 2018, an increase of 11% year-over-year.
Monthly active users (MAUs) – MAUs were 2.23 billion as of June 30, 2018, an increase of 11% year-over-year.
Mobile advertising revenue – Mobile advertising revenue represented approximately 91% of advertising revenue for the second quarter of 2018, up from approximately 87% of advertising revenue in the second quarter of 2017.
Capital expenditures – Capital expenditures for the second quarter of 2018 were $3.46 billion.
Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $42.31 billion at the end of the second quarter of 2018.
Headcount – Headcount was 30,275 as of June 30, 2018, an increase of 47% year-over-year.
Facebook has never reported anything other than user growth in Europe.
Still, Zuckerberg assured investors that Facebook continues to see growth on its core platform, as well as its other properties, which include Instagram, WhatsApp and Messenger.
For the first time ever, Zuckerberg provided user growth data on those properties, saying that Facebook now has 2.5 billion people who use at least one of its apps, referring to users who may have an Instagram account, as well as a Facebook profile.
'Our community and business continue to grow quickly,' he said. 'We are committed to investing to keep people safe and secure, and to keep building meaningful new ways to help people connect.'
According to analysts, stalling numbers are likely the result of forcing Facebook users to consciously opt-in to having their information used for personal advertising - one of the key stipulations of the stringent GDPR rules.
GDPR, which came into affect May 25, stipulates that companies must explicitly request consent from their users in order to personal data for advertising purposes.
Companies that do not comply with GDPR can be fined up to four per cent of their global revenue.
To comply with the new regulations, Facebook rolled-out a security check-up to users worldwide which asked them to review what kind of personal information they consent to sharing for advertising targeting. Users were also asked to consent to facial recognition technology on the site.
Analysts believe users may have been scared off by the explicit details about how their data is being used by the social network.
Meanwhile, in addition to the financial woes, a promotional event for Facebook’s new video feature descended into a shouting match on Wednesday, as reporters quizzed the social media giant's executives about its decision to allow Fox News and Infowars on the platform.