Does Facebook's Board have the Answers?
George is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) has disappointed. Nothing like a $10 per share drop in value -- $38 to under $29 is atrocious. That’s something like 24% in a blink of the eye. Now everyone is soured. So what should the board do? Not Zuckerberg who probably still cannot find his way to Barney’s. But the board. They have ultimate responsibility.
Lets take a look at the make up.
Reed Hastings also sits on Microsoft’s board (NASDAQ: MSFT) Not that long ago the connection provided credibility. But today Facebook needs to stand on its own two feet so some sort of de facto imprimatur has no further value. Any close connection between Facebook and Microsoft will be scrutinized closely by regulators and competitors with big legal budgets. Also Facebook reputedly has gone to Scandinavia to find a new browser. You can use Bing to search for more information.
Erskine B. Bowles started his career at Morgan Stanley (NYSE: MS) and after a career in financial wheeling and dealing and politics he now sits on Morgan Stanley’s board. Does he recuse himself from portions of board meetings that deal with Facebook issues? I’ll bet Facebook might be on at least an informal never happened agenda discussion; you know drinks after work at the Four Seasons. It’s not far away. His continued value as a director to Facebook; that's up for discussion.
Donald Graham CEO of Washington Post (NYSE: WPO), which counts Warren Buffett of Berkshire Hathaway fame, is there why? Old media advice for the most anticipated high tech IPO is a major non sequitur. He does not sit on any other boards. Big media barons always raise eyebrows when they play outside of their sandbox.
James W. Breyer who hails from the venture capital community is also the lead/presiding independent director for Wal-Mart (NYSE: WMT) which has a snoot full of governance problems in Mexico. While there is no evidence that he has any personal involvement, how is this going to help Facebook shareholders.
The remaining directors are venture capitalists who are watching their nest egg very carefully. Not sure if they want or could sell at well under the IPO price as it would only validate generalized market concerns that something was radically wrong with the IPO.
So basically Facebook needs to revamp their Board. Given the low market price of the stock, the stock option portion of directors compensation should be very attractive. So attractive that it may become embarrassing and therefore not possible.
So your investment is still in the hands of a twenty something geek who just got married and has little experience in generating sustainable profits and cash flow. Good luck with that.
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