MGT 444 SDSU Ethics In Practice Case Facebook
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MGT 444 SDSU Ethics In Practice Case Facebook
Ethics In Practice Case Facebook and Say on Pay for Directors?
In 2014, a shareholder derivative suit was filed in the State of Delaware Courts alleging that the Facebook Board of Directors violated their duties to their shareholders by paying its nonexecutive directors an average $461,000 per director, which was 43 percent more than peers like Adobe, Amazon, Cisco, eBay, and Yahoo!, among others. The lawsuit, Espinoza v. Zuckerberg, further noted that the Facebook Board granted its board members an unlimited amount of stock as part of their annual compensation, with the only limit being a $2.5 million share limit per director in a single year (worth approximately $145 million at the time of filing). The lawsuit claimed breach of fiduciary duty, waste of corporate assets, and “unjust enrichment.” The issue accelerated in late 2014, when Jan Koum, WhatsApp cofounder and CEO, joined the board and received a salary of $1 but stock awards worth over $1.9 billion when Facebook acquired WhatsApp.
The Facebook Board at the time consisted of eight individuals, six of whom were “outside” (i.e., nonemployee) directors who benefited from the compensation plan, including Lead Independent Director Donald Graham and Directors Peter Thiel, Marc Andreessen, Reed Hastings, Erskine Boles and Desmond-Hellman. Inside directors included founder and CEO/Chairman Mark Zuckerberg and COO Sheryl Sandberg. Zuckerberg, who had 60 percent of the voting power, allegedly approved the stock grants in a written affidavit, rather than at a stockholder meeting—thereby circumventing shareholders by signing off on directors’ stock grants instead of presenting it at a shareholders’ meeting.
Facebook ended up settling the lawsuit—agreeing to submit its non-employee director compensation program to shareholder vote in the future. However, the vote of Facebook’s shareholders was a mere formality, as Mr. Zuckerberg held voting control of Facebook’s shares. Nevertheless, the lawsuit brought up issues of Say on Pay—this time for not just company executives but also for company directors.
Should directors have the right to approve their own compensation without taking it to shareholder vote? Please justify your answer and explain what might or might not warrant this.
Did Zuckerberg break the law by not bringing the compensation issue up in a stockholder meeting?
What is an appropriate level of director pay? Is the proposed compensation in the Facebook situation excessive? How might this be determined?
Institutional Shareholder Services, a proxy advisory firm, has noted that there is “too much work and too much time” required of directors; could this justify higher director pay?
MGT 444 SDSU Ethics In Practice Case Facebook
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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