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Marc Andreessen And Mark Zuckerberg Are BFFs, And Pesky Board Negotiations Can't Change That

Smiley-face-laden texts between besties are a natural part of Silicon Valley board decisions.
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(Getty Images)

(Getty Images)

To anyone convinced that Silicon Valley is a cold and unfeeling place that sees human society as an accretion of inefficiencies to be disrupted and reengineered for profit, observe the touching friendship between tech buddies Marc Andreessen and Mark Zuckerberg. Andreessen was one of Zuckerberg's first friends – and funders – in the Valley. In return, Zuckerberg gave him a seat on the board in 2008, and the two have remained tight since.

But their friendship might just be too big for this petty world. A group of Facebook investors is suing over the bromance, concerned that smiley-face-laden text messages Marc sent Mark during sensitive board deliberations represented a conflict of interest during a contentious vote over Zuckerberg's control of the company. Nothing that beautiful can last.

The dispute goes back to last year, when Zuckerberg wanted to sell a bunch of shares but maintain voting control of the company. To do so would require a stock split that would dilute other voting shares, potentially to the detriment of other stakeholders. The proposal was controversial, so the board created a special committee to represent shareholders on the matter, composed of Susan Desmond-Hellmann, Erskine Bowles and, of course, Zuckerberg bestie Andreessen. (Board member Peter Thiel was busy with other legal matters, presumably.)

You can guess what happened next.

While on the committee, Andreessen slipped Zuckerberg information about their progress and concerns, helping Zuckerberg negotiate against them, according to court documents. [...]

When the time came for the committee to ask Zuckerberg questions on a conference call, Andreessen warned the Facebook founder about what he would be asked before directors posed the questions. While the committee grilled Zuckerberg about why he wanted a special class of stock, Andreessen sent the CEO text messages to explain which of his arguments weren't working and why, according to messages quoted in court filings. During one March 4 call, Andreessen gave Zuckerberg live updates, both negative ("This line of argument is not helping. ☺") and positive ("NOW WE'RE COOKING WITH GAS"), according to texts provided by Facebook’s lawyers and cited in court filings.

"Andreessen even told Zuckerberg that he was working to protect Zuckerberg’s personal interests through the Special Committee process,'' according to the filings.

So maybe it looks kind of bad when a supposedly independent board member secretly schemes with the chief executive while purporting to represent shareholders. One particularly cringeworthy example: When the two prevailed over Bowles, who initially looked askance at the whole deal, Andreessen texted, “The cat's in the bag and the bag's in the river.”

"Does that mean the cat's dead?" Zuckerberg replied, dumbfounded. To which Andreessen said: "Mission accomplished ☺"

Whose mission, you ask? Well, this is a tech giant – normal publicly-traded-company rules don't apply.

But in Silicon Valley, sometimes the conventional setups for companies don't work. Keeping a controlling and visionary founder happy can lead to the high-risk, high-reward bets that keep companies thriving, said David Larcker, a legal professor focusing on corporate governance at Stanford's Graduate School of Business.

"Silicon Valley is a pretty networked place," Larcker said. "People know each other, have done deals together -- but it doesn't mean that governance is out of control or it's the Wild West or something. It could be the case that what the board is doing is actually accretive to shareholders." Zuckerberg's chats with Andreessen may just be "part of the dialogue" needed to evaluate the proposal, he said.

Facebook shareholders may think they're investing in an advertising company or a social media network or whatever, but what they're really invested in is a guy named Zuckerberg. And his very special friendship.

The company adds, in a statement: “Facebook is confident that the special committee engaged in a thorough and fair process to negotiate a proposal in the best interests of Facebook and its shareholders.”

Facebook's Investors Criticize Marc Andreessen for Conflict of Interest [Bloomberg]

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Nuns, Whores, DCFs

For some reason it is corporate governance day at Dealbreaker, so here is a grab-bag of inchoate nonsense (for a change!). First of all look at this: The third-largest U.S. proxy adviser recommended that El Paso Corp shareholders vote against a proposed $23 billion sale of the company to Kinder Morgan Inc, switching its position after comments made by a Delaware judge. Egan-Jones Proxy Services said in a report that it was withdrawing its endorsement of the deal because of "the conflicts of interest cited by (Delaware Chancery Court judge Leo Strine) and the attendant doubts cast on the deal." How should you take this? Well, one way to take it would be: if you paid me to tell you how to vote on things, you'd probably want me to look into those things and decide if they're good things for you, and if they are tell you to vote for them and if not etc. So Egan-Jones* went and looked at this merger and decided it was a good merger and that its clients should vote for it. Then they learned about the conflicts of interest cited by the Delaware court, most of which were publicly available long before the opinion came out,** and changed their minds. Suggesting that they didn't really do a bang-up job of examining the merger to begin with. But that's a stupid way of looking at Egan-Jones's role because, really, you're an EP shareholder and you're like "oh Egan-Jones ran a DCF and this price looks good to them"? You can go read the DCFs of actual investment banks if that's the sort of thing that gets you going. Nobody's actually paying proxy advisors (do people pay them? I don't know) for actual advice on how they should actually vote their shares. Instead they're paying (maybe?) for some vague patina of good "corporate governance," which means something like "good processes and independent boards and no conflicts of interest" and gets lots of chin-stroking academic articles written about it.