Facebook is now on watch and could be dropped to a failing grade for corporate governance by GMI Ratings.
“To those who have been paying attention since the beginning, the company’s poor governance has been an unmistakable warning sign for investors to take heed, and clear opportunity to avoid the resulting massive destruction in share price,” said Greg Ruel, a senior research associate at GMI, which tracks governance, environmental, social, and accounting-related risks affecting the performance of public companies.
In a ratings alert released this week, GMI said Facebook (FB) is likely to join the 5% of companies it rates an “F” for the rules and standards under which it is directed and controlled.
GMI’s concerns include:
- The recent stock selloff by founding investor and board member Peter Thiel.
- CEO Zuckerberg’s sale of more than $1 billion shares in May, when the stock was at $37.58.
- GMI says top executives have resigned “in droves” since the IPO.
- A board with many insiders and those with related party transactions.
- An ownership structure that results in CEO Zuckerberg controlling about 61% of voting shares.
- What GMI says is unclear pay performance targets that “appear to be mostly discretionary.”’
- What it calls an “exceptionally high” level of perks for key executives.
In particular, the Thiel stock sale has generated the most criticism recently. He sold another 20.1 million of Facebook shares on August 16 and 17, raising $395.8 million, according to an SEC filing. He had already sold $640.1 million during the IPO, bringing his total proceeds to more than $1 billion. Thiel now holds about 5 million shares of the company.
One of the only apologists so far for the Thiel sale is Covestor manager Barry Randall, who runs the Crabtree Technology model. Randall told the e-Commerce Times:
It’s doubtful that Thiel looked at the recent decline in Facebook’s share price and said to himself, “‘maybe I should wait until the price goes up a little.”
Read more of Randall’s comments here.
