There's been a lot of focus on Peter Thiel this week. The Facebook (FB) director sold 80% of his remaining shares in the social-media company late Friday. This means that he has sold 89% of the 46 million shares that he had owned in early May, before the IPO.
Thiel has -- rightly -- been raked over the coals for this move. It's not that he's selling. It's that he's a director and has been selling.
The focus on Thiel puts a spotlight on Facebook's entire board. We've always known that the board doesn't really matter at Facebook. They serve at the pleasure of King Zuckerberg. However, people are starting to notice just how lax this board is.
In addition to Thiel, there are two Silicon Valley venture capitalists on this board: Marc Andreessen and Jim Breyer, both of whom still own Facebook shares. They should stay on, although if they were ever to pull a Thiel, they should leave for similar reasons that Thiel should leave.
The newest member of the board is COO Sheryl Sandberg. She is certainly a qualified candidate. That's why Disney (DIS) already appointed her to its board, and she has served on the Starbucks (SBUX) board in the past. Yet she is a company insider. So of course, she is going to be more cordial and deferential to Zuckerberg (because she is a company insider, not because of her own style or Zuckerberg's). She was also added to the board only after some shareholders raised a mini-uproar over the fact that no women were on the board. It would have been nice to see Zuckerberg appoint some outside women directors to the board before it became an issue.
Then we have the two senior members of the Facebook board: Don Graham of The Washington Post and Erskine Bowles. They each own exactly zero shares in the company (except for restricted stock units paid to them as compensation for serving on the board). That means they have no skin in the game. I think it's atrocious. If you like the company enough to spend your time on the board, can't you put a little bit of scratch in the company's stock? Why wouldn't the company force them to belly up to the bar and buy something?
And then there's Reed Hastings, the CEO of Netflix (NFLX). He's a relatively new appointee to the board, arriving in June 2011. Like Graham and Bowles, he owned no Facebook stock either until a few weeks ago. At that time, likely because he could envision the criticism that would have eventually come his way, he bought $1 million worth of stock in the company -- at $21 a share. When directors make big round-number purchases like this, they tend to be symbolic. It was the right thing for Hastings to do. However, shareholders who bought in at $38 -- or $44 -- on the first day of trading sure would have felt better if he'd done the same, to really "feel their pain" all the way down.
It is what it is at Facebook. If you want good corporate governance, keep looking for another investment.