When Meta’s shares plummeted last week in response to yet another dismal earnings report, most analysts pointed to Mark Zuckerberg’s obsession with the Metaverse as the source of the company’s woes. And while it’s true that Zuckerberg’s Metaverse experiment to date has been underwhelming, these analysts are missing the forest for the trees. Meta has a much bigger problem in that the company is failing to assess and mitigate risk in both the short and long term. Until Meta fundamentally changes direction, investors are right to be sceptical about the company’s future.
At its core, Meta’s management structure is fundamentally broken due to the company’s dual class shareholder structure. This structure gives Zuckerberg and select members of his inner circle stronger voting power relative to independent shareholders, providing him with near total control over major management decisions and effectively silencing dissent. While most corporations are obliged to be more responsive to shareholders, Meta can simply shrug off critics.
In practice, this has allowed Meta to ignore concerns about short and long term risk. But as the loss of billions in valuation over the course of 2022 has demonstrated, putting on blinders and ignoring threats and risks to the company is not an effective management strategy.
Zuckerberg has, at times, appeared to acknowledge Meta’s problems with risk management. Following the Cambridge Analytica scandal in 2018 and growing pressure from independent shareholders, Meta expanded the role of its audit committee, now named the Audit and Risk Committee, to include a mandate for assessing “major ways in which [the company’s] services can be used to facilitate harm or undermine public safety or the public interest” and more. Given the company’s ever multiplying problems, however, it’s unclear what if anything the three members of the committee – PayPal’s Peggy Alford, former McKinsey executive Nancy Killefer, and Estée Lauder’s Tracey Travis – have done to support the committee’s mission of assessing and mitigating risk. The lack of transparency around the committee’s work makes it difficult to assess its effectiveness.
A shareholder proposal calling for an independent audit of the committee’s work and a public report, would have shed some light on the company’s risk management. Unsurprisingly, the company opposed the resolution and, thanks to the dual class structure, it was voted down at this year’s annual shareholder meeting, despite receiving support from proxy advisor Glass Lewis. Meanwhile, Meta continues to be engulfed in scandal. Last fall, company whistleblower Frances Haugen released documents revealing Meta’s own research demonstrated its products were toxic for teens. On a nearly weekly basis, new revelations about Meta’s content moderation problems emerge. And to date, the company has been fined billions of dollars by regulators across the globe for misconduct ranging from campaign law finance violations to failing to adequately protect user privacy. The ill-advised bet on the Metaverse just adds to Meta’s myriad woes.
Meta has proven to be a risky investment independent of Zuckerberg’s laser-like focus on the Metaverse. It’s no surprise that as the stock price continues to decline investors are demanding accountability from Zuckerberg who, as the chair, CEO, and largest shareholder, calls the shots. Given the company’s downward trajectory, criticisms of Zuckerberg’s leadership will only mount. The question is whether Meta’s board, which at least feigns independence, will take any action or continue allowing Zuckerburg free rein. Unless and until the board steps up, Meta’s failure to assess and mitigate risk will leave investors wary of the company’s future.
Melanie Sloan is a former lawyer for the House Judiciary Committee and a current Senior Advisor for the Campaign for Accountability, a nonpartisan watchdog organisation that seeks to expose misconduct and malfeasance in public life. Christina O’Connell is a Senior Manager for Shareholder and Investments at SumOfUs, a global advocacy organisation that campaigns for corporate accountability.