Mark Zuckerberg is a single point of failure at a company that is systemically important to the internet

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• 83% of independent Facebook investors believe Mark Zuckerberg should be fired as chairman of the board.
• It is extremely rare for a majority of common stockholders to vote against their own CEO with such a massive majority.
• The shareholders' problem is that Zuckerberg has a history of making mistakes.
• The cost of Zuckerberg's errors in judgment run into the billions. In one morning back in March, $30 billion was wiped from the value of the stock over an incident that Zuckerberg later took responsibility for.
• Texts between Zuckerberg and board member Marc Andreessen show that at least one other Facebook director thinks Zuckerberg's control of the stock is "the straw that breaks the camel's back on the optics of good governance."
• It's weird that a company that is systemically important to the internet is so dependent on a single point of failure: Zuckerberg.
  

Mark Zuckerberg is the founder, CEO, and chairman of the board at Facebook. He also controls a majority of the company's voting stock. His power at the company is complete. He cannot be fired or disciplined. If the directors on his board attempted to remove him, he could simply vote with his stock to replace them with friendlier ones. It is unlikely the current directors would do that because they are each paid at least $350,000 a year, except for the ones who are also Zuckerberg's company employees - they are paid many millions more.

Zuckerberg has much more power than ordinary CEOs at publicly traded companies, many of whom are held accountable by independent board chairmen and directors appointed at the behest of investors. On paper, everything ought to be going his way.

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And yet Zuckerberg is at war with his own shareholders. As Business Insider's Jake Kanter reported last week, 83% of independent investors - those stockholders who are not Zuckerberg himself or his managing executives - believe he should be fired as chairman of the board.

That's an astonishing majority against him, given the stock's performance. By any measure, Zuckerberg has delivered as CEO. His product is used by 2 billion people. The stock has risen from an IPO price of $38 in 2012 to $195 today - a staggering return.

Yet his own investors think he needs to be reined in.

Zuck's critics should be taken seriously

It is extremely rare for a majority of common stockholders to vote against their own CEO with such a massive majority. Even in the fiercest of proxy fights, activist investors find it difficult to muster more than 20% or 30% of a company's stock. (Shareholders suffer from extreme inertia - it's easier to sell the stock than it is to wage war against a board.) If, at an annual general meeting, the company wins a vote by a margin of less than 90%, it is generally regarded as a sign of significant unrest.

So Zuck's critics should be taken seriously.

The shareholders' problem is that Zuckerberg has a history of making mistakes, which he himself admits.

He initially did not think that Russian interference in Western elections via Facebook was a big deal. He also took responsibility for not following up quickly enough on the Cambridge Analytica crisis. "We didn't take a broad enough view of what our responsibility is, and that was a huge mistake. It was my mistake," he said.

Way back in the beginning, Zuckerberg made the mistake of being cavalier about his users' privacy. As a 19-year-old Harvard freshman who founded Facebook in his dorm room - an origin story Zuckerberg still references when he speaks in public today - he sent a string of texts to a friend describing how much data he had access to. "People just submitted it," Zuckerberg told his friend. "I don't know why. They 'trust me'. Dumb fucks."

Facebook, with Google, has a duopoly over the internet

Who among us has not said something stupid as a teenage student? We can forgive him for that.

Zuckerberg is a different person today. He is a corporate titan whose firm vacuums up half of all new advertising dollars being spent on the web. Facebook, with Google, is a de facto duopoly over the internet. The pair capture 71% of all digital ad spending in Europe, according to analyst Brian Weiser at Pivotal Research.

And that is precisely why Zuckerberg's unchecked power is so dangerous. In March, Facebook stock slipped 6%, wiping $30 billion off the value of the company, on the Cambridge Analytica news. That was just one morning's trading.

The cost of Zuckerberg's errors in judgment thus run into the billions.

Yet Facebook, which is systemically important to the internet, remains tightly attached to a single point of failure: Mark Zuckerberg.

At other companies, the founder, ceo and chairman are three different people. If one gets something wrong, there are two others to act as backup.

Leaked texts from the board say: "He's worried that it's the straw that breaks the camel's back on the optics of good governance"

Even Zuckerberg's own board members are aware that this is a problem. In December 2016, some texts between Zuckerberg and Marc Andreessen, the Netscape cofounder turned Silicon Valley investor who runs the venture-capital fund Andreessen Horowitz, surfaced in a shareholder lawsuit.

The suit alleged that Erskine Bowles, one of Facebook's board members, was "worried that one of the concessions Zuckerberg wanted - to allow the billionaire to serve two years in government without losing control of Facebook - would look particularly irresponsible." (Zuckerberg wanted the option to leave the company and go into politics without giving up control.) Andreessen texted Zuckerberg that the "biggest issue" was "how to define the gov't service thing without freaking out shareholders that you are losing commitment."

"Erskine is just massively uncomfortable with you getting to low economic ownership and then going off on leave with no involvement by the board and retaining control,'' Andreessen, who is also a board member, said.

"We rediscuss it on every call ... I'm going to try to drag it over the line one more time. ☺ ... He's worried that it's the straw that breaks the camel's back on the optics of good governance."

Facebook's independent investors - a majority of all investors - believe the company's corporate governance is wrong. And at least one of Zuckerberg's own board members thinks Zuckerberg has gone too far, in the past, in his desire for control.

It is not clear what the independent shareholders can do to force more accountability inside Facebook's corporate governance structure.

But it is clear that it is needed.

This column does not necessarily reflect the opinion of Business Insider.