Facebook Shareholders Challenged Zuckerberg and Left Empty-Handed

(Bloomberg) -- The unhappiness that has been growing among Facebook Inc. shareholders for much of the past two years was on full display Thursday at the company's annual shareholder meeting.

One investor described Facebook as “Zuckerberg's failing autocracy.” Another said the company “destroyed journalism.” SumOfUs, an organization that runs digital campaigns intended to apply pressure on powerful corporations, had members standing outside holding signs that read “Vote No On Zuckerberg” and “Break Up Facebook.” They also brought a large, inflatable balloon shaped like the angry face emoji on Facebook's website.

It was a strong show of force, but though shareholders came out swinging, they walked away without anything tangible to show for it.

“It was a pretty tense meeting,” said Leila Deen, the program director for SumOfUs, who attended the investor gathering. “It didn't feel like [Facebook executives] were really hearing the concern that was in the room.”

Shareholders presented eight different proposals, many of them intended to limit Chief Executive Officer Mark Zuckerberg's power, an issue that has become increasingly prevalent given Facebook's recent run of crises over the past year -- from privacy breaches to election meddling and spreading terrorism. One proposal outlined a change in voting structure to limit a special class of shares that carry extra votes, shares mostly owned by Zuckerberg. Another suggested removing him as chairman. Zuckerberg, the 35-year-old co-founder who has majority voting control, rejected all of them, just as Facebook said he would.

The vote tallies haven't yet been made public, but all it took was for Zuckerberg to vote against these proposals to ensure they failed.

“The cascading series of failures over the last several years -- at their root they are from the company's irresponsible governance structure,” said Eli Kasargod-Staub, who was also in the room representing Majority Action, a nonprofit group focused on supporting corporate shareholders. “We have zero confidence that these issues are going to resolve favorably.”

A year of public scandals for Facebook has taken a toll on the shares as well. The stock is down 2.5% in the past 12 months, compared with a 2.4% gain in the S&P 500. But Facebook may be starting to move beyond the bad headlines. So far this year, the shares are up 40%, far outpacing the 11% gain in the S&P and other tech peers like Alphabet Inc. and Twitter Inc.

Zuckerberg presented prepared remarks before the meeting opened up to a broader question-and-answer session. He outlined some of the product areas that Facebook is focused on, including a plan to push into private, encrypted messaging. Zuckerberg also addressed Facebook's control over content, and echoed a sentiment that he and other executives have been talking about for years: The government should share in the responsibility of deciding what posts should go up, or come down, on Facebook.

“If the rules for the internet were getting re-written from scratch today, I don't think that most people would want private companies to be making so many decisions by themselves about what constitutes acceptable speech,” he said.

A few of the shareholder questions focused on content issues. One woman complained that she is continually put in “Facebook jail” because she tries to sell hoodie sweatshirts on the service with the slogan “men are trash” written on them. Another asked that Facebook consult more people of color when creating content policies.

The question-and-answer session, though, was wide ranging. One shareholder asked about Facebook's efforts to create an artificially intelligent voice-assistant. Another asked about plans for a digital currency. Zuckerberg declined to get into specifics on either. One man said Facebook helped to “destroy journalism,” and asked what the company planned to do about it.

Chief Operating Officer Sheryl Sandberg said Facebook works with publishers around the world, and “remains a very important source of traffic for journalists.”

Perhaps the most symbolic exchange of the day came from a shareholder who asked whether Zuckerberg would be “willing to cede some of that power” that he has as Facebook's CEO, chairman and controlling shareholder. Zuckerberg repeated the comments he made from his prepared remarks, that he wanted the government to be more involved in content decisions. Facebook, he said, is even creating an independent oversight board so that the company doesn't have to single-handedly decide what's allowed on the network.

“At that point, it doesn't matter what I think, or what any of our product or content teams think,” he said.

The shareholder wasn't satisfied. “More directly, would you be willing to step down from your role as chair and cede your super-voting shares? That's really my question.” she added.

The meeting's moderator jumped in to say there was a one-question limit. Zuckerberg never answered.

To contact the reporter on this story: Kurt Wagner in San Francisco at kwagner71@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz, Andrew Pollack

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