Facebook's decision to let Mark Zuckerberg retain 57 per cent of voting control after a planned public stock offering diminishes shareholder rights and board accountability, according to Institutional Shareholder Services.
The proposed dual-class structure that would let chairman and chief executive Zuckerberg make business decisions over any shareholder objections might divide ownership into opposing groups, said ISS, which advises more than 1700 investors on corporate governance. Competing interests could become entrenched, and lead to "unpopular restructuring", ISS said.
"The real dilemma of Facebook's dual-class structure will only become evident when (or in a best-case scenario, if) an autocratic model of governance makes it less viable than a competitor whose governance gives owners a voice proportionate to the economics they have at risk," ISS said.
Some of Zuckerberg's shares will have 10 times more voting power than the Class A common stock the firm plans to sell in a US$5 billion ($5.9 billion) initial offering, a February 1 filing shows. Zuckerberg, 27, also gained voting power through agreements with individual stockholders, owning an "irrevocable proxy" over those shares, Facebook said.
The California State Teachers' Retirement System, a Facebook investor, said last week it was scrutinising the company's corporate governance.
While Zuckerberg has 56.9 per cent of the voting power, he owns 28.4 per cent of the company he founded, the largest single stake. He extended his voting power by implementing a dual-class stock structure in 2009.
Jonathan Thaw, a spokesman for Facebook, declined to comment, Reuters reported.
ISS said Facebook's structure followed that of other technology companies that had held IPOs, including Zynga and Groupon.
"In anticipation of its upcoming public markets debut," ISS said, "Facebook appears to have taken the same outdated dance lessons as many other recent tech sector debutants."