Beware the Facebook IPO

Facebook CEO Mark Zuckerberg in September 2011.
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(MoneyWatch) COMMENTARY In a dreary economy, the Facebook IPO is exciting. We still - for some reason - like insane numbers, ridiculous promises and unimagineable wealth. But for serious investors, Facebook should give them pause. Why?

1. It's been made very clear that the CEO, Mark Zuckerberg, doesn't really want to take the company public. Moreover, the ownership structure is such that he retains fundamental control over the business. Between his own shares and those he has made voting agreements with, post-IPO Zuckerberg controls at least 57.1% of the Class B shares (which have 10 votes apiece, compared to the publicly owned shares which carry one vote apiece.) That gives him total voting control over the company - which means, in essence, that this is like investing in a private company. Shareholder interests? Forget them.

2. Zuckerberg controls at least half that voting power even if he leaves the company. So, should he care to walk away and leave his horse in control, there's precious little shareholders can do about it.

3. Zuckerberg has already made it clear that he doesn't really need or seek advice. His ludicrously over-priced acquisition of Instagram was done without consulting any of the board, even though he was, of course, using their money just as, in future, he may be spending yours.

None of this may harm Facebook's business. It is possible (though not necessarily likely) that Zuckerberg will carry on making decent, if uninspired, decisions and the website will continue to grow and generate revenues. In that respect, it may share clear similarities with Rupert Murdoch's News Corporation (NWS): A public company that is run just like a private company, at the whim of the founder who still treats it like private property.

You can't say you haven't been warned. To his credit, Zuckerberg has failed to make any of the phoney promises or to adopt any of the public postures that might imply some faint interest in public shareholders. He doesn't care about them, would prefer not to deal with them and won't ever take them seriously. Buyer beware.

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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on