Large institutional investors are ramping up their calls for governance reforms at Facebook Inc. following revelations that Cambridge Analytica, a data-mining company that was a digital consultant to Donald Trump's 2016 presidential campaign, harvested the personal data of about 87 million users.
Among the changes investors seek are increased board diversity and independence, equal shareholder voting rights, a separation of the roles of CEO and board chairman, and enhanced oversight and disclosure of Facebook data privacy policies.
While Facebook investors have raised their voices on several of these issues in the past, the corporate capital structure has helped insulate management from shareholders' pressures thus far. CEO and Chairman Mark Zuckerberg owns about 16% of the company's economic interest but controls 60% of its voting rights.
However, asset owners believe the time is nigh for Facebook to reform its corporate governance.
One of those investors is New York City Comptroller Scott M. Stringer, the fiduciary for the five pension funds within the $193 billion New York City Retirement Systems. In a March 27 letter to Facebook's lead independent director, Susan Desmond-Hellmann, the comptroller called on her and the board's other independent directors to take steps to "strengthen the composition and independence of the board, enhance its oversight and disclosure of data privacy policies and practices, and establish a strong tone at the top for ethics and compliance."
The four steps outlined in the letter are:
- naming an independent board chair;
- forming an independent nominating committee to reconstitute the board with at least three new independent directors with racial and gender diversity;
- assigning an independent committee to oversee data privacy policies and enhancing disclosure of the processes underway to avoid data breaches; and
- enacting a "robust clawback policy to allow the board to recoup executive pay in the event of violations of law, regulation or company policy that cause significant financial or reputational harm to Facebook."
As of April 11, Mr. Stringer's office had not heard back on its requests.
"Given that Facebook is now confronting a crisis of confidence, and there is substantial value at risk, I think this is a moment for investors to elevate the governance issues we have been raising and to push for real change," said Michael Garland, the system's assistant comptroller for corporate governance, in an emailed statement.
In a telephone interview, he added: "As a long-term (Facebook) shareowner, largely through index strategies ... if we have concerns about the board or the management or the data privacy practices, we can't just walk away. And we want to make sure the company is sustainable over the long term."