In 2014, a shareholder derivative suit was filed in the Delaware Courts alleging that the Facebook Board of Directors violated their duties to their shareholders by pay- ing its nonexecutive directors 43% more than “peers,” despite its net income and revenues being 66% and 49% lower, respectively, than its peers. The peers named in the suit included Adobe, Amazon, Cisco, eBay, EMC, LinkedIn, Netflix, Qualcomm, SAP AG, The Walt Disney Company, VMware, and Yahoo!, Inc. The suit noted that in 2013, the Facebook Board paid its nonexec- utive members an average $461,000 per director, 43%, or $140,000 higher than the average per director compen- sation in Facebook’s Peer Group. It further noted that the Board is free to grant its board members an unlimited amount of stock as part of their annual compensation under a 2012 equity incentive plan, with the only limit a $2.5 million share limit per director in a single year (worth approximately $145 million at the time of filing). The Facebook Board at the time consisted of eight individuals, six of whom were “outside” (i.e., nonem- ployee) directors including Lead Independent Director Donald Graham, and Directors Peter Thiel, Marc Andreessen, Reed Hastings, Erskine Boles and Desmond-Hellman. Inside directors included founder and CEO/Chairman Mark Zuckerberg and COO Sheryl Sandberg. The lawsuit alleged that all of the Directors approved the compensation and all of the nonexecutive directors received the compensation. The lawsuit claimed breach of fiduciary duty, waste of corporate assets, and “unjust enrichment.” The issue of director compensation accelerated in late 2014, when Jan Koum, Whats App cofounder and CEO, joined the board and received a salary of $1, but stock awards worth over $1.9 billion, representing a sign-on award of $25 million restricted stock units when Facebook acquired Whaz App. However, Face- book CEO Mark Zuckerberg allegedly approved the stock grants in a written affidavit, rather than at a stock- holder meeting—and with 60% of the voting power, he had the ability to approve whatever he wanted. The question remains as to whether Mark Zuckerberg failed to comply with Delaware corporate law, where the com- pany is incorporated, in circumventing shareholders by signing off on directors’ stock grants instead of present- ing it at a shareholders’ meetin

1. Do you believe that directors should be able to approve their own level of compensation without approval by a shareholder vote? Why?

2. Did Zuckerberg break the law by not bringing up the compensation at a shareholder meeting? Was his silence ethical behavior?

3. What is an appropriate level of director pay? Is the compensation given to Facebook directors excessive?

4. What are the duties and responsibilities of corporate directors? Do these duties/responsibilities justify high levels of pay?

5. Research Facebook CEO Mark Zuckerberg. Are his actions as CEO always ethical and moral? Are there any ethical issues with the policies and activities of Facebook?