Analysis: Investor activists see little to "like" in Facebook

Thu Feb 9, 2012 12:21am EST
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By Paritosh Bansal

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.   Continued...

<p>An illustration picture shows the log-on screen for the website Facebook, in Munich February 2, 2012. REUTERS/Michael Dalder</p>