Facebook shareholders try to SACK Mark Zuckerberg as chairman, as $118 billion wiped off tech giant's market cap

Mark Zuckerberg's personal wealth also took a major hit — the co-founder and chief executive lost $16.8 billion in extended trading


                            Facebook shareholders try to SACK Mark Zuckerberg as chairman, as $118 billion wiped off tech giant's market cap

On Wednesday, Facebook reported disappointing second-quarter results — profit was up 31% in the second quarter at $5.1 billion; revenues rose 42% to $13.2 billion, slightly below most forecasts. While the company's financial results were close to expectations, a weak outlook spooked the market. The company said it expected the annual revenue growth to decelerate at a high-single digit clip sequentially in both the third and fourth quarters. 

And soon after, Facebook's shares went into a freefall sliding almost 20%, wiping out an estimated $130 billion in market value, as a stunningly weak financial outlook raised fresh concerns for the social networking giant as it tries to recover from the impact of data protection scandals and investigations.

Mark Zuckerberg's personal wealth also took a major hit — the co-founder and chief executive lost $16.8 billion in extended trading. But he wasn't the only one. Other big investors also lost big and now they are trying to fire Zuckerberg as chairman of Facebook.

Mark Zuckerberg's personal wealth also took a major hit — the co-founder and chief executive lost $16.8 billion in extended trading (Getty Images)
Mark Zuckerberg's personal wealth also took a major hit — the co-founder and chief executive lost $16.8 billion in extended trading (Getty Images)

Leading the charge is Trillium Asset Management, an activist investor that has tangled with Zuckerberg before. Hours after the dismal earnings report, Trillium filed the proposal citing the company’s 'mishandling' of recent scandals, including the Cambridge Analytica data saga, Russian interference in the 2016 US election and fake news, according to Fortune

The proposal argues that shareholders are unable to check Zuckerberg's power given he holds roughly 60% of Facebook's voting shares as both chair and CEO. In his place, Trillium wants an independent chair.

"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." 

Trillium holds an $11 million stake in Facebook. It began advocating for the company to split the chairman and CEO roles last month. Last October, it submitted a proposal to establish a risk oversight committee within Facebook’s board to guard against fake news, among other issues, Fortune said.

This isn’t the first time shareholders have come after Zuckerberg. Last year, 51% of independent investors voted to oust him as chairman. Yet the proposal was rejected because Zuckerberg holds Class B shares that give him the majority of the voting power. Class B shares have 10 times the voting power of Class A shares and Zuckerberg owns more than 75% of all Class B shares.

That definitely makes it unlikely that Trillium’s most recent proposal will gain any traction. However, Fortune claims Trillium is actively seeking support from other shareholder groups, who could be equally frustrated with the company’s performance on both Wall Street and the stage of public opinion.

So far Facebook has not officially commented on Trillum's recent move to oust Zuckerberg. But the company has previously said splitting Zuckerberg's role in two would create "uncertainty, confusion, and inefficiency in board and management function."

Investing in safety, security

Zuckerberg said the tech giant has been investing heavily in "safety, security and privacy" after being rocked by concerns of manipulation of the platform to spread misinformation and the hijacking of user data.

"We're investing so much in security that it will start to impact our profitability, we're starting to see that this quarter," Zuckerberg told a conference call on quarterly results. But he added that "we run this company for the long term, not for the next quarter."

Zuckerberg has said he did not expect a meaningful impact from the uproar over data hijacked by political consulting firm Cambridge Analytica, but the last quarter's figures suggested some cooling.

The update showed the key metric of monthly active users rose 11% to 2.23 billion, below most estimates of 2.25 billion, while daily active users grew a weaker-than-expected 11% to 1.47 billion.

Mark Zuckerberg (Getty Images)
Mark Zuckerberg (Getty Images)

Zuckerberg said Facebook lost around one million users in Europe amid the implementation of new EU data protection rules, but noted that many Europeans "want to use context from ads," suggesting they are opting into allowing data collection for advertising purposes.

Almost all of Facebook's revenue — $13 billion of the total $13.2 billion — came from online advertising, a sector dominated by the California social network along with Silicon Valley rival Google.

Although Facebook shares were in a slump after the Cambridge Analytica scandal broke earlier this year, the stock had risen sharply and hit record levels this month.

According to the research firm eMarketer, Facebook is expected to hold an 18% share of the $273.29 billion worldwide digital ad market, behind Google's 31%.

According to the research firm, Facebook-owned Instagram is making up for some of the slowdown in growth at the social network and will generate $8.06 billion in worldwide ad revenue this year.

Separately Wednesday, Facebook general counsel Colin Stretch, who advised the company through a series of probes and investigations into data privacy, said he would be leaving for personal reasons.

"There is never a 'right time' for a transition like this, but the team and the company boast incredible talent and will navigate this well," Stretch said on his Facebook page.

With inputs from AFP