Mark Zuckerberg, shown here in 2010.
(Credit: James Martin/CNET)Friday, May 4, 2012
Is Mark Zuckerberg a risk factor for Facebook's IPO?
Is CEO Mark Zuckerberg an obstacle to his own company going public?
Fox Business News correspondent Charles Gasparino is claiming that an internal J.P. Morgan document discussing Facebook's IPO cites Zuckerberg as a "risk factor." No other details were revealed in Gasparino's teasing tweet, but the correspondent promised to reveal more information on "FBN@11am."
But beyond Gasparino's limited tweet, Facebook's own S-1 filing with the Securities and Exchange Commission highlights some potential risk factors concerning Zuckerberg.
Obviously, the loss of Zuckerberg as well as other key personnel would hurt Facebook's business, the company noted. But even and especially with Zuckerberg at the helm, the huge number of shares and voting rights that he'll own could also spell trouble.
After the company goes public, Zuckerberg will "own or have the ability to control approximately 57.3% of the voting power" of the company's outstanding capital shares, according to the SEC filing. As such, that means the CEO will be able to control certain matters up for approval by the investors, including the election of board members as well as the management and direction of Facebook itself.
What if Zuckerberg's own interests differ from those of the stockholders?
"As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders," the filing noted. "As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally."
As a result, the voting power that will rest with Zuckerberg could impact both the company and its stock price.
"This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support," the filing further noted. "This concentrated control could also discourage a potential investor from acquiring our Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the market price of our Class A common stock."
Facebook's IPO has already been delay. Management was scheduled to kick off a roadshow to promote the public offering, with trading slated to start May 14. But Zuckerberg has been tied up with other matters. With the roadshow now rescheduled for mid-May, the IPO could take off in June.
But will the risk factors cited in the SEC filing have any impact on the IPO? Facebook still seems on track to go public, so it's clearly counting on Zuckerberg to manage his voting rights in the best interest of the company rather than in the best interest of himself.
CNET contacted Facebook for comment. We'll update the story when we get more information.
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