June 26 (Bloomberg) -- Facebook Inc., facing criticism for a lack of diversity on its board, appointed Chief Operating Officer Sheryl Sandberg as its first female director.
“Sheryl has been my partner in running Facebook,” Chief Executive Officer Mark Zuckerberg said in a statement yesterday. “Her understanding of our mission and long-term opportunity, and her experience both at Facebook and on public company boards makes her a natural fit for our board.”
Facebook has been seeking to add directors, including at least one woman, who can make its board more inclusive, people with knowledge of the matter said last month. The world’s largest social-networking service, a majority of whose users are women, will benefit from the addition of a female voice to its board, said Laura Martin, an analyst at Needham & Co.
“This is a great move for Facebook,” said Martin, who doesn’t own shares and rates the stock a buy. “Academic research shows that the greater the diversity on a board, the higher the returns to shareholders are.”
The California State Teachers’ Retirement System, which manages $145 billion, asked Facebook in February to add a woman to its board, arguing that diversity improves governance and performance. The advocacy group Face It Campaign also urged Facebook to diversify its board to include women and minorities.
UltraViolet, a women’s rights organization, said that while Sandberg’s appointment represents progress, the company shouldn’t end with a single female director.
“Our goal has always been and Facebook’s goal ought to be gender parity,” in part because the company’s success relies on the participation of women, said Shaunna Thomas, co-founder of UltraViolet. “They have a great opportunity to demonstrate that women should have a seat at these tables.”
Chief operating officers serve as directors for 718 publicly traded companies, including 24 members of the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.
Zuckerberg picked existing directors as he sought advice in building the company he co-founded in a Harvard University dorm room in 2004. Aside from Zuckerberg, the board includes Donald Graham, CEO of Washington Post Co.; venture capitalist Mark Andreessen, co-founder of Netscape Communications Corp.; Jim Breyer, managing general partner of Accel Partners, an early investor in Facebook; Peter Thiel, a venture capitalist and the founder of hedge fund Clarium Capital LLC; Reed Hastings, CEO of Netflix Inc.; and Erskine Bowles, president emeritus of University of North Carolina.
Counter to Zuckerberg
Sandberg may provide outside Facebook directors with a perspective about the company separate from founder Zuckerberg, even though many companies no longer invite their No. 2 executives onto boards, said Rakesh Khurana, a Harvard Business School professor who has written about governance.
“Prior to the big shift to independent boards in recent years, chief operating officers or other No. 2’s at companies were often directors,” said Khurana. “The reason given was they could provide information about the company to outside directors, so the CEO didn’t completely dominate.”
Just 11.3 percent of the Fortune 500 had male-only boards last year, according to Catalyst, a New York-based nonprofit organization that researches women’s progress in business.
Sandberg was hired as COO of Menlo Park, California-based Facebook in 2008 and is a director of Walt Disney Co.
Before joining Facebook, Sandberg was vice president of global online sales and operations at Google Inc. Previously, she served as chief of staff for the U.S. Treasury Department under President Bill Clinton. She began her career as an economist with the World Bank.
“Sheryl’s a totally natural fit for the board,” said Matt Cohler, a partner at Benchmark Capital who is an adviser to Facebook, in an e-mailed statement. “She’s been an important part of building and managing Facebook’s growth over the years, helping the company to create long-term value.”
Facebook rose 4.2 percent to $33.42 at 3:03 p.m. in New York. Through yesterday, the stock had lost 16 percent this year.
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