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Facebook CEO Mark Zuckerberg is seen on stage during the Facebook F8 conference in San Francisco, California
Reuters/Stephen Lam
In control.
FACEBOARD

Peter Thiel staying on Facebook’s board is irrelevant, but let’s talk about Mark Zuckerberg

Lucy P. Marcus
By Lucy P. Marcus

Should board members be removed because they express unpopular opinions? How much power is too much power when it comes to company control? These were two significant issues that captured people’s attention in the run up to and the aftermath of Facebook’s Annual General Meeting that was held on June 21.

The catalyst for the first issue was whether long-serving board member Peter Thiel, a controversial figure of late, should be allowed to keep his seat. The second issue arose from Facebook’s decision to introduce a new class of non-voting shares so that Mark Zuckerberg would not dilute his voting rights. Though at first glance the two issues seem unrelated, they are in fact closely linked.

Boardrooms are full of individuals with strong opinions, reputations, and projects of their own. As such, every board is bound to have some disagreements, and even some missteps. The differences are often beneficial–they lead to more robust discussions.

The scale tips, however, when the company suffers deleterious effects as a result of what I call director contagion. That is when the actions of board members, when they are operating outside the boardroom, adversely affect the reputation of the companies on whose boards they sit. Boards serve for the benefit of the company and its stakeholders, and if a board member does something that harms the reputation of the company, action must be taken, including removal from the board.

It is not clear that Peter Thiel falls squarely into that category. His position as a non-executive director of Facebook is being debated because he has endorsed Donald Trump for president and helped fund a recent lawsuit that brought Gawker to bankruptcy. Though these actions may be distasteful to some, neither is illegal. Also, when people think of Thiel, their first association is not usually with Facebook, but rather his other high profile projects, like his initiative to encourage budding entrepreneurs to abandon higher education after high school.

Notably, Thiel is not the only board member from whom Mark Zuckerberg has had to publicly distance the company this year. Marc Andreessen’s comments in February about India in the wake of Facebook’s failed attempt to launch Free Basics there caused an uproar of perhaps an even greater magnitude, and was more directly harmful to the company. That incident seemed mostly forgotten by the time the AGM rolled around.

Above all else, one of the reasons that investors are not more concerned about the actions of these two board members is what links the first issue–who is on the board–to the second one–voting rights.

Precisely because Facebook’s board members don’t have a great deal of power, who sits on the board is less of a focus for investors. The voting power dynamic is such that Peter Thiel, Marc Andreessen, and their fellow board members can give advice and offer up contrary opinions, but have limited authority to affect change.

Indeed, Mark Zuckerberg has so much control that he can essentially vote to give himself more of it, as he did at the AGM, and no one can do much to stop it. And, given the vote at the AGM, it is going to stay that way for the foreseeable future. With the current structure, the only way that could change is if the market grows unhappy with the direction of the company and investors vote with their wallets and feet, taking their money elsewhere.

So, as things stand now, Facebook is a multinational entity with controlled company status, directors that are drawn from a limited pool, where board diversity consists of a mix of democrats, libertarians, and republicans, and whose directors can’t actually do much in the face of the power of the chairman and CEO.

The greatest concern about this structure actually has nothing to do with investors, however. Facebook holds the key to a lot of our data, including who we talk to, what we photograph, and pretty much everything else about us. Add in Free Basics, and they are also akin to a public utility, serving the internet to over a billion users around the world.

There is something deeply disquieting about Zuckerberg’s incremental increase in control. It is the opposite of the direction that the world of investment and corporate governance is going in. The conversation around Facebook shouldn’t be about Peter Thiel, it should be about the role of the board as a whole. It should be about the implications of what it means to have one person, as gifted and well intentioned as Mark Zuckerberg may be, having so much control over a company that has so much impact on so many people’s lives.