Facebook: We Told You It Wasn’t Going to Turn Out Well

The following entry appeared as part of GovernanceMetrics International’s GMI Blog. GMI is the leading independent provider of global corporate governance and ESG ratings and research. Corporate stakeholders – including leading investors, insurers, auditors, regulators and others – use GovernanceMetrics services to identify and monitor risks related to non-financial measures covering key environmental, social, governance and accounting risk factors.

GMI Ratings doesn’t rate IPOs. The information contained in their S1s, the document filed with the SEC describing the public offering, is either incomplete for our purposes or subject to change, or both. That’s not to say that we don’t write about IPOs. We’ve written about this one on Forbes, twice. And on the GMI Ratings blog.

None of what we had to say redounded much to Facebook’s reputation as a potentially well-governed company.

But now we have an official rating.

D.

Not a good start.

So, apart from the dual class stock, the controlling shares, the monotone board, the bizarre compensation for CEO Mark Zuckerberg – yes, he does get compensation – as if that weren’t enough, what was it that ground out that D rating?

Red flagged key metrics include:

Board is not majority independent

Related party transactions

Overboarded non-executive directors

Discretionary incentives

Evergreen equity plans

Excessive severance and perks

Long list of shareholder rights abuses

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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