back to article Zuckerberg and other directors sued over GIGANTIC PACKAGES

A disgruntled shareholder is suing Mark Zuckerberg and other top Facebook execs over what he claims are unreasonably generous payment terms. Ernesto Espinoza filed with the Delaware Chancery Court on Friday, saying that the way pay was decided at the moment basically left the board free to give itself however much money it …

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"The lawsuit is without merit and we will defend ourselves vigorously," Genevieve Grdina told Reuters in an email.

The next words spoken @ Facebook... "MONEY FIGHT!!!"

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Jackass

God damnit. People like this suck. They're all the same, way in over their heads.

As long as the Board is following the compensation calculation guidelines they drew up then there's fuck all shareholders can do about it. Each company publishes its compensation rules so that if you don't like them you don't put money into that company. Alternatively, you can put huge amounts of money into a company and try to buy enough shares to override Board authority, but that's just a stupid thing for an individual to do.

There should be a kiddie pool for individuals who want to trade in public companies. That way they can learn how things work before they get in too deep.

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Anonymous Coward

Re: Jackass

"As long as the Board is following the compensation calculation guidelines they drew up then there's fuck all shareholders can do about it."

Whilst that is true in "law", the United States has a parallel legal system of "equity" (hailing from the British court of chancery). In equity, things aren't so simple: company directors owe fiduciary duties to deal with the company's assets in an honest way.

If the board make a dishonest decision, e.g. set "compensation calculation guidelines" that result in all of the company's assets being distributed to themselves, then the directors could be liable for breach of their fiduciary duty even though the decision was taken in accordance with company law.

Whether or not Facebook's remuneration policy does actually breach fiduciary duties is a question for the courts. Whilst I suspect that they will err towards allowing companies broad discretion to set remuneration terms, it is impossible to conclude with such certainty that these claims are unfounded (unless the relevant jurisdiction has previously decided a similar question in another case, about which I do not claim to have any knowledge). That said, shareholders often approve remuneration policies in general meeting, in which case it'd be extremely hard to prove breach of fiduciary duty.

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Re: company directors owe fiduciary duties to deal with the company's assets in an honest way

The Board is being "honest" : it is declaring the equity program and it is public about it. That is the definition of honesty : say what you do, do what you say. I doubt very much that the complainant will get any traction against that in Court - it is in General Assemblies that such a point should be raised.

Honesty has nothing to do with morals, though, and this case outlines it brilliantly. The Board at Facebook is giving itself three times the payback compared to other companies with similar capital, I can understand that a shareholder doesn't like that. Said shareholder would probably expect the "excess" wealth to go into his pocket and, given that he is a shareholder, I can understand that as well.

However, I contend that to compare Board revenue with other companies is, by definition, approving the way the other Boards are doing business and allocating resources. I don't agree with the way Disney does business (I certainly disagree with its stranglehold on copyright laws) and I wouldn't use that as a reference for anything.

Besides, didn't anybody tell him ? Facebook is The Zuck's baby. You don't like his decisions, then don't invest in it, bitch.

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Re: company directors owe fiduciary duties to deal with the company's assets in an honest way

Facebook really is the Zuck's baby. When they did their IPO he only had something like 10-15% of the shares, but had over 50% of the voting stock. So he can do anything he wants, and can never be overruled by anyone. Or sacked. Therefore if you invest in his company, you can't complain that you didn't know what you were getting into. And if you think he's a total numpty who does things like agree $1 billion deals on his sofa, over a weekend and without telling his board first, then you might want to be wary of giving him your money.

If you buy shares in what is effectively his company, after the board have published those compensation guidelines, then more fool you.

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@AC Re: Jackass

I think you missed this bit: Delaware Chancery Court on Friday

That's a bit like trying to sue a patent troll in East Lansing, Texas.

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Re: company directors owe fiduciary duties to deal with the company's assets in an honest way

"So he can do anything he wants, and can never be overruled by anyone. Or sacked."

He can do anything he wants *within the realms of what is lawful*. The question being posed is whether this remuneration policy is unlawful.

If he controls a majority of the voting rights, then obviously he can't be removed *by a vote* (unless he votes for it himself); however, he could still be removed *by operation of law* - for example, if he acts in such a way as to become disqualified from company directorship.

Besides which, there are laws to protect minority interests: shareholders with a controlling majority cannot ride roughshod over the legitimate interests of investors with minority stakes.

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Anonymous Coward

Re: company directors owe fiduciary duties to deal with the company's assets in an honest way

"The Board is being "honest" : it is declaring the equity program and it is public about it. That is the definition of honesty : say what you do, do what you say."

...therefore you would presumably consider it honest behaviour to steal everything and blow it all on Champagne and strippers, provided that you first announce that's what you're about to do?

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Re: company directors owe fiduciary duties to deal with the company's assets in an honest way

"...therefore you would presumably consider it honest behaviour to steal everything and blow it all on Champagne and strippers, provided that you first announce that's what you're about to do?"

If you announce to the shareholders at the next AGM that you intend to take all of FY 2015's profits and blow them on champagne and strippers they are then properly informed and have the option to vote you out. If they do not, then taking all of FY 2015's profits and blowing them on champagne and strippers isn't "stealing" at all.

You laid out a business plan. It was voted on. You enacted it. There is no law that says your business plans have to make sense, only that they can't break the law.

I could not, for example, blow FY 2015's profits on champagne and hookers, unless I was in a jurisdiction where prostitution was legal and both the jurisdictions of my company HQ and my primary personal residence did not have laws against my engaging sexual services for hire while outside those jurisdictions. (Some places will send you to jail for being a john if they find you you engaged hookers in another country, etc.)

However, I could indeed blow those profits on champagne and strippers, because I can easily find a jurisdiction where strippers are legal, and I know of no jurisdiction that will prosecute you for engaging their services while in another jurisdiction.

Next item on the agenda: our marketing plan for FY 2015 is to invite all prospective clients to our champagne and strippers binges to experience first hand our next-generation community-building techniques. With this bold new plan we hope to be able to drive greater revenue by ensuring potential clients understand how an excess of champagne and strippers can create company loyalty.

This brings us to a voting item. The FY 2015 business plan is to spend all profits on champagne and strippers. All opposed: <crickets>. All in favour: "me!". Motion passes.

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@Don Jefe

I'm inclined to agree. If you don't like the way the board is doing things, then you're free to sell your shares and get the hell out.

I can only imagine he's trapped after the Great-Facebook-Pump-And-Dump-Swindle and so selling his shares would mean taking a loss.

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Re: @Don Jefe

Yes and No. If you own a single share of the company and you are fighting the majority opinion, then yes, you have the right to sell your shares and shut up.

However, while you own those shares, you do in fact own part of the company, and therefore the board works for you. Therefore if you can control (or convince others to) enough of the shares, then the board have to do as you say.

That said, the fact he's resorted to the lawyers suggests that he falls into the first camp.

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Re: @Don Jefe

Class B Common shares, which is what this guy owns, give him zero ownership stake in the company. He owns ($sharevalue) of post liability surplus.

Besides, shareholder revolt is extraordinarily hard to pull off. An enormous block of shareholders with voting rights have to pool their shares, vote out a super majority of the Board and replace that super majority with people who will vote as those in the voting block desire. The loneliest person in the world is a Board member who had his seat purchased as a shareholder tactic. Everybody hates that guy because he's not there for the company, or even himself, he's there for someone else.

Anyway, my point is that there is a lot more to shareholders getting a say in company operations than people think. Most companies don't even let common shareholders into shareholder meetings. Above all the financial news stuff everybody reads about there is an entirely separate layer of shares and shareholders and it's those investors that have what little leverage with the Board that exists.

Common stock shareholders have about as much influence on Boards as I have on Vladimir Putin.

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Re: @Don Jefe

If Monday's closing price was $62.88, and he still holds Facebook shares, then I doubt that he is nursing any losses from the IPO ($38?).....

Steve

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Re: @Don Jefe

> The loneliest person in the world is a Board member who had his seat purchased as a shareholder tactic. Everybody hates that guy because he's not there for the company, or even himself, he's there for someone else.

Unless I misunderstand; by "someone else" you mean "shareholders with voting rights"? Also known as owners of the company? Whom the board is meant to represent the interests of?

Besides which, ol' Zucky-boy personally holds a majority stake in the company IIRC, so the point is moot in this case. Without Zuckerberg's ear, the only way any other shareholder could get such a change enforced would be via the courts.

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WTF?

Re: @Don Jefe

yes, and perhaps it needs changing....

P.

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FAIL

Wow. Non voting "B" shares that give you *no* control whatsoever in the company.

And people bought them in the 21st century.

You are indeed all Marki Mark's "bitches."

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Re: Wow. Non voting "B" shares that give you *no* control whatsoever in the company.

"You are indeed all Marki Mark's "bitches.""

Indeed. But nobody here is speaking out for Spotty Zuckerberg, so I'll have to do it.

What a coup! The bloke enriches himself fabulously with dumb share buyer's cash. He cements his position in such a way he can't be removed. He ensures that he can pay himself what he likes without any effective challenge. He awards himself absolute levels of executive authority. He ensures that not only does he have a board of cronies (or patsies), but that even if one did suddenly find a bit of moral fibre in their soul, they've got no clout with Zuck. He cashes out sufficient of his ownership to mean that regardless what happens to Facebook (including his options) he need never work again, and he'll still die as one of the richest people to have ever lived.

I've seen people in the UK using a listed company as a personal ATM, but they're now in prison. Zuck appears to have managed to do this within the law. But who's lost out in the Facebook example? Everybody had access to the prospectus, and subsequently to SEC filings, and they've presumably invested money they can afford to lose. Many have made a killing, some have lost. Any sensible investors recognise that this is a big, over-priced Ponzi scheme, but so what? Every buyer is hoping the music doesn't stop whilst the parcel is in their hands.

Hats off to Zuckerberg, I say, even if Facebook is a pile of privacy invading cr@pware, and even if he is a ***t. I wish I'd thought of this.

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Dude should just sell some shares and make some money and stay out of the company operations. As much as I'm not the biggest Facebook fan, on compensation of the Board, this guy is probably just looking for his five minutes of fame, before disappearing into obscurity.

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Facepalm

Yes, facepalm and other net 'businesses' are Ponzi schemes.

Yes, he is right the Executives are paid massively too much, but why does he even need to care enough to sue?

This twit is either a crazed speculator buying the toxic businesses and doing a greedy bitch session, or is somehow still naive that they are toxic and is bitching because he is clueless.

Just sell them and buy something which isn't Ponzi, ...assuming there is much out there which is not Ponzi!

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If he don't like it!

As a shareholder in the company he merely owns shares, if he is not happy with the executive or board compensation policy then he should just sell his shares and buy shares in a company that has policies that he agrees with.

It's a-holes like this that think that they are being hard done by for the slightest reason.

I may not like Zuckerberg but it's not like the policy was hidden, it was in place at the time of the IPO and also when later shares were released by the company. I bet this guy has tried to sue his employers for telling him to get off his arse and get his work done. LOL

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