Facebook’s Shareholders Don’t Count

It is not always easy to think clearly about the mechanisms of corporate democracy. So for instance at lots of companies the chief executive officer is also the chairman of the board of directors. There are good abstract reasons for disliking this (the board is the CEO’s boss and should not report to the CEO, etc.), and in some cases there may be even better specific reasons for disliking it (the CEO is feckless and needs adult supervision, etc.).

So what often happens is that shareholders submit a proposal asking the board to have an independent chair. The way this works is that the shareholders send the proposal to the company, and the company includes it in its proxy statement, and the shareholders get to vote on it at the annual meeting. The proposal’s wording will be something like “Resolved: Shareholders request the Board of Directors adopt as policy, and amend the bylaws as necessary, to require henceforth that the Chair of the Board of Directors, whenever possible, be an independent member of the Board.” It is phrased as a request to the board, and it is non-binding. The board will generally ask shareholders to vote against the proposal, because, after all, the board is chaired by the CEO and he doesn’t want to give up that seat.