His court date canceled, Mark Zuckerberg went to South Philly for a cheesesteak.
Judge J. Travis Laster had expected the Facebook founder Sept. 26 in Delaware's Court of Chancery, where corporate America settles fights between owners, to answer complaints — from SEPTA and 10 other Facebook investors — that Zuckerberg and his Silicon Valley board pals were pulling an illegal power grab.
But Facebook backed down, settling the case with two business days to spare. Zuckerberg went to Delaware anyway, said "Hi" to Gov. John Carney, did a limo run to Pat's — and posted pictures of both visits on Facebook, where he's been promoting his travels outside Silicon Valley, as a regular guy in touch with the people whose personal data he sells.
Here's the Facebook road to Cheez Whiz, according to court documents:
When their firstborn arrived in December 2015, Zuckerberg and wife Priscilla Chan posted a charming letter telling baby they were giving away the family business.
Instead of promising little Max she would inherit the social-media empire, her parents said they would give "99% of our Facebook shares — currently about $45 billion" to their new charity, because "we love you and feel a great responsibility to leave the world a better place for you and all children."
Generous? On a global scale. But Zuckerberg also displayed a parental quality some Facebook shareholders saw as less attractive: He wouldn't let go.
In March 2015, with baby still an embryo, Zuckerberg had begun meetings with bankers at Goldman Sachs, Morgan Stanley, and Democratic fund-raiser Robert Altman's Evercore Partners, plus Wall Street and Silicon Valley lawyers, to keep control of Facebook after passing his shares to his charity.
Zuckerberg owned little Facebook common stock, but had a 60 percent controlling say on Facebook acquisitions, board seats, and other key decisions, thanks to special super-voting shares. If he started giving away that stock, his lawyers warned, Zuckerberg would give up control — the way Bill Gates did when he gave his Microsoft billions to his charity.
Keeping Zuckerberg in charge, his bankers emphasized, would prevent "activists" such as billionaire takeover artist Carl Icahn from pressing Facebook for more profits, the way Icahn was squeezing Netflix. Netflix boss Reed Hastings sat on Zuckerberg's board, with PayPal founder Peter Thiel and other Silicon Valley insiders tied to Zuckerberg through investments, jobs, or donations.
"Bulletproof" control through super-voting shares is the best way for visionary empire-builders to "take enormous risks" with investors' money, as Comcast cofounder Julian Brodsky told tech-firm founders in a 2013 talk. But, Brodsky warned, it's possible only "if you have the guts, and the staying power, and the greatest business since sliced bread." In Silicon Valley, only "Facebook, Google, and a couple of others" have been able to follow media moguls such as Comcast's Roberts clan and preserve founder control against pesky "short-term" investors, he said.
Zuckerberg's advisers warned that he would probably have to pay shareholders if he took their votes. Google paid more than $500 million so its founders could keep super-voting control while selling some shares. But Zuckerberg said he would not pay. His plan to dump most Facebook investors into a new class of stock with no voting power was ratified by his board, then approved by shareholders, over opposition by Vanguard Group and other institutions, who were outvoted by Zuckerberg's super-voting shares, employee shareholders, and other allies.
So "SEPTA sued, because the stock reclassification proposed by Facebook and Mr. Zuckerberg would diminish the value of SEPTA's Facebook shares" by stripping their votes, the transportation authority's general counsel, Gino Benedetti, told me. SEPTA's suit was combined with others filed by pension funds in Rhode Island and Sweden, union-backed Amalgamated Bank, and more.
On Sept. 22, Facebook gave up. In a post, Zuckerberg said Facebook stock had risen so much (by $60 a share) since early 2016 that he could afford to fund his charity without losing control. (With no settlement payout, the stock fell $10, to $160.)
"I'm not surprised" Facebook folded, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "No one likes to be deposed. And the fact is, the tide is turning against supermajority voting."
The fight over Sumner Redstone's legacy shares at Viacom and the drop in value of other media companies controlled by super-voting families (such as Dow Jones and the Washington Post, both sold after losing value) tarnished the strategy, Elson said. Vanguard, the biggest owner of S&P 500 stocks, voted against supermajority shares and for "one share, one vote," not just at Facebook, but at Comcast, Ford, Google, and UPS.