Investor activists see little to "like" in Facebook
NEW YORK (Reuters) - A new crop of companies entering the U.S. public markets, including such high-profile offerings as Facebook, are turning the clock back on the way U.S. corporations are run.
Facebook, Groupon Inc, LinkedIn Corp, Zynga Inc and others have put in place governance provisions that go against a long-term swing towards more shareholder-friendly rules.
One stark example of this reversal
is in the number of companies that have classified or staggered boards,
where only a handful of directors come up for election each year rather
than all of them, making it hard for an activist investor or unwanted
suitor to take control of the board through a proxy context.
Another is the creation of dual-class stock structures, which allow founders and early investors to gain greater voting control than their economic interest would otherwise suggest.
In the past 10 years, many of the
biggest publicly traded companies in the U.S. have been getting rid of
such provisions. Currently, for example, only about 24 percent of
S&P 500 companies have classified boards, down from 61 percent in
2002, according to FactSet SharkRepellent.
But there hasn't been such a
significant change among new arrivals. Of the 76 companies that went
public last year, nearly 65 percent had classified boards. In 2002, 82
percent of IPOs had the feature.
Of the eight high-profile IPOs in
the social networking and new media space last year, all either had
classified boards or dual-class structures, with some having both.
Of these companies, Zillow Inc and LinkedIn
had both, Angie's List Inc, Jive Software Inc and Pandora Media Inc had
classified boards, while Groupon, FriendFinder Networks Inc and Zynga
had dual-class structures.
While new companies are generally
more likely to seek protections against corporate raiders and activist
hedge funds, the extent of the barriers and some of the actions taken to
shore up defenses are being questioned, especially given the
high-profile nature of some of the companies involved.
It has some major investors feeling dissed.
"These are companies who for one
reason or another decided that they are going public, but they do not
want to have to answer to the public market," said Janice Hester-Amey, a
portfolio manager in the corporate governance unit at the California State Teachers' Retirement System.
"The big issue is that you take
money from the public market, and the reason that companies do this is
so that they can acquire other companies, expand their business,"
Hester-Amey said. "So the money is worth some respect."
Angie's List, Facebook, Groupon,
Zillow and Zynga declined to comment. A spokesman for LinkedIn said that
"we believe our corporate governance structure allows us to execute on
our strategic plans, enabling us to maximize long term value for our
company and our shareholders."
The other companies did not respond to requests for comment.