For each unique company and unique situation, I believe they should utilize business structures, financing strategies, and all other tools that help them keep their company unique. For this reason, I cheer on Mark Zuckerberg and Facebook for their ability to utilize unique investment terms and corporate structures to suit their purposes. I applaud them for being able to garner these terms and to recognize the importantance of doing things differently when the circumstances demand or allow it. Some of these differences include:
- Zuckerberg being able to maintain voting rights for many shares held by others
- Utilizing restricted stock to compensate employees rather than the traditional stock options used by Silicon Valley companies
- Being able to alter significant, standard terms from the venture capitalists who invested in Facebook
- Utilizing the dual class structure also utilized by Google, Zynga and other older companies like the Washington Post and the New York Times
For investors, these changes are not necessarily in their favor, but investors always have the option to not invest if they do not feel the trade-off is worth it. Institutional Shareholder Services criticized Facebook and other companies in their white paper “Tragedy of the Dual Class Commons” when they said “This is a governance profile with a defense against everything except hubris.” The California State Teachers’ Retirement System has also criticized Facebook’s governance structure. From their perspective, the criticism is probably warranted. I believe, however, it is more important to allow companies to pursue their unique structures and strategies rather than force all companies into a mindless formula applied to all companies regardless of their circumstance. If investors do not like it, they can pass on the investment.