Breaking Up Facebook Isn’t Enough

The Facebook co-founder Chris Hughes calls the company’s influence staggering and dangerous. But his solutions are incomplete and unsatisfying.

These are the data that advocates would use to justify Facebook as a “natural monopoly,” like the water or electric grids. Hughes dismisses that claim, but offers no alternative perspective. Overall, he has little to say about how a hypothetical breakup of the company would impact the core Facebook product at all. Would you divest core Facebook into national shards and expatriate them, perhaps imposing some kind of punitive excise tax in the process? Would you break core Facebook up into sub-products, like Messenger, ads, News Feed, and so on? Given the fluidity of software, it’s hard to identify discrete products or services within Facebook’s offering, and Facebook itself changes them all the time—just recently, the company announced plans to redesign its app based on events and groups, and to de-prioritize the News Feed.

The company has never looked like a railroad or a telco, or even a technology company from a former era, like Microsoft, with its Windows, Office, Cloud, and other distinct products and associated divisions. Part of the problem with breaking up Facebook is that the company is amoebic, of little determinate form, like the networks of mucous mesh grazers that trawl the deep seas.

The appeal of Hughes as a critic of Facebook derives from his status as a co-founder, an early member of the product team, and a friend of Mark Zuckerberg. And yet, he failed to concretize that unique experience into a unique perspective. It’s not like Hughes is the only party to suggest breaking up Facebook, or to cite Instagram and WhatsApp as the obvious limbs to sever first. Given how dire his warnings are about Facebook’s power, the idea that a tripartite version of the company would offer satisfactory reprieve rings hollow.

Facebook’s power brings up one clear problem: Zuckerberg’s tight grip on the board of directors, and therefore on the company’s strategy and actions. But Hughes gives only momentary attention to the company’s governance structure, noting that the CEO controls about 60 percent of its voting shares.

Read: Two-class corporate ownership structure: not just for media dinosaurs anymore

Hughes makes no call to end Facebook’s ownership structure, which is the cause of that imbalance of power. Facebook has two classes of stock. One of the purposes of stock ownership is to give investors a say in the way a company is governed. That’s done through the board and through proxy votes by individual and institutional investors. In Facebook’s case, Class A shares are issued to the latter; they are worth one vote per share. Class B shares are controlled by Zuckerberg and a small group of investors and insiders; they are worth 10 votes per share. Zuckerberg controls the majority of Class B shares.

This structure, known as dual-class stock, has become more common in recent years as a way to give founders and investors greater control of their companies, even after they go public. Proponents of the multi-class approach sometimes claim that the structure helps executives focus on long-term growth, but critics see it as a way to avoid oversight even after a company goes public. When Google went public in 2004 (with a two-class structure), co-founder Larry Page wrote in an investor’s letter that the express purpose of that structure was to “make it harder for outside parties to take over or influence Google.”

Sammy Singh

Graduate of UCLA and Wharton School of Business and Media Personality. World renowned global entrepreneur, venture capitalist, financial technology professional, tax specialist, marketing mogul, and more! Connect with me at: www.linkedin.com/in/cfo www.instagram.com/champagnegqpapi www.facebook.com/sammysinghcxo www.twitter.com/cxosynergy

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