Facebook Inc. (FB) and its directors settled a lawsuit brought by the social networking company's stockholders, a Delaware Court of Chancery official wrote in an email this afternoon.
The stockholder plaintiffs claimed that CEO and founder Mark Zuckerberg and the company's other directors violated their fiduciary duties by approving a restructuring of the company's equity that would have allowed Zuckerberg to retain voting control of Facebook even as he sold shares in the company.
Terms of the settlement are expected to be released after markets close Friday. Vice Chancellor J. Travis Laster, the judge in the case, will have to approve the settlement of the class action litigation. Trial in the case was scheduled to start on Tuesday, with company founder and CEO Mark Zuckerberg taking the stand.
A Facebook shareholder in 2016 filed a class action lawsuit to stop the company's plan to issue Class C stock. The shareholder alleged the move would unfairly entrench Zuckerberg as controlling shareholder.
The suit is just one of a number of complaints shareholders has brought against the company in regards to its share structure and governance practices.
A large minority of outside investors voted in June to have Facebook separate its chairman and CEO roles, which are occupied by Zuckerberg. Some 31% of shares not owned by Zuckerberg voted to back a shareholder proposal seeking to have the two roles separated, according to a securities filing.
Nothing ever came of that suit as Zuckerberg controls about 60% of voting class shares, though a much smaller portion of the company's equity
Voting class shares has been a hot button issue in 2017 as Snap Inc. (SNAP) and others have issues stock with little to no voting power in order to keep power in the hands of founders.
"The issue in think in the US with Snap and Facebook is that at the moment it works well because founders are still there and looking after the business," said Peter Bonfield, chairman of NXP Semiconductors NV, who spoke at The Deal's annual corporate governance and activism conference in London. The Deal is a sister company of TheStreet.com.
"If you go a few years and Zuckerberg gets to be 95 years-old and not as focused on the business as he should be it will raise the question of whether that structure still works," he added.
Shares of Facebook were down less than a percent Friday to $170.17 apiece.
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