Facebook lawsuit urges management, investment reforms to better reflect diversified stockholder base

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Facebook lawsuit overview:

• Who: A Meta Platforms shareholder has sued the company’s directors and officers.
• Why: The plaintiff claims the company needs management and investment reforms.
• When: The Facebook lawsuit was filed in Delaware’s Court of Chancery.

Meta puts the profits of a few over public safety, broad economic welfare and the interests of diversified stockholders, and it must overhaul its management and investment practices, a new lawsuit alleges.

Plaintiff James McRitchie—a Meta Platforms investor—filed the lawsuit Oct. 3 against CEO Mark Zuckerberg and other Meta directors and officers in Delaware’s Court of Chancery, alleging breach of fiduciary duty.

He alleges that Meta prioritized the profits of stockholders who control the company through the ownership of highly concentrated positions of high-voting common stock, instead of prioritizing global health and safety, and the health of global markets and the majority of stockholders.

“The economic benefits from—indeed the viability of—a system of corporate law rooted in maximizing financial value for stockholders would vanish if it forced directors to make decisions that increased corporate value but depressed portfolio values for most of its stockholders,” the lawsuit states.

“But this is precisely how the Company has operated: Defendants have ignored the interests of all of its diversified stockholders, making decisions as if the costs that Meta imposes on such portfolios were not meaningful to stockholders.”

Meta must look after smaller investors, lawsuit states

McRitchie says the company must curb its focus on investments that benefit insiders and big shareholders while neglecting the interests and social needs of its broader, small investor constituencies and the world at large.

The lawsuit alleges that, in order to drive more traffic and revenue, the algorithm governing the Facebook platform was changed to make it “an angrier place,” leading to harsher political discourse around the world. 

“As fiduciaries at a corporation with a business model that depends upon maintenance of a powerful global network, the directors and officers of the Company cannot willfully blind themselves to this reality: where there is great power there is great responsibility,” the lawsuit states.

“This circumstance is particularly troubling because it favors the small subset of stockholders who control the Company through the ownership of highly concentrated positions of high-voting common stock, including the Company’s CEO and Chairman. For this controlling subset, maximizing the value of the Company by undermining the global economy is financially beneficial.” 

The complaint also details how Meta failed to spend money to prevent its platform from being used to promote modern slavery, ethnic violence, organized crime, and vaccine disinformation, to the detriment of global GDP.

Meanwhile, Meta Platforms Inc., the operator of Facebook, has been hit with a class action lawsuit alleging it intercepts, monitors, and records users’ browsing activity and communications without their consent.

Do you have shares in Meta? Let us know your thoughts on the lawsuit in the comments! 

James McRitchie is represented by Kurt M. Heyman and Gillian L. Andrews of Heyman Enerio Gattuso & Hirzel LLP.

The Facebook shareholder lawsuit is James McRitchie v. Mark Zuckerberg et al., Case No. 2022-0890, in the Court of Chancery of the State of Delaware.

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