How Facebook Threatens the Legitimacy of the Stock Market
Facebook banked $16 billion on its initial public offering, so why are market analysts disappointed? Perhaps because the company threatens the dominance of the stock market itself.
What's the Latest Development?
With Facebook's shares trading well below their initial value one day after the company went public, just who is to "blame" for what has gone "wrong"? Some say the company's banker, Morgan Stanley, diluted the potency of the stock by allowing a whopping 421.2 million shares to be sold. Others, like James Surowiecki, say Facebook's creative accounting may have dampened investor interest. In the past, becoming a publicly traded company has meant giving more decision making power to investors. But Facebook's two-tiered share system left CEO Mark Zuckerberg with control over 57% of the voting shares while owning just 18% of the company. In other words, Facebook is still entirely his show.
What's the Big Idea?
Ever since it was clear that Facebook would become a publicly traded company, Zuckerberg has been candid about not ceding his vision to investors (wearing a hoody to his Nasdaq meeting helped emphasize that). In today's market, says Surowiecki, investors are more short-sited than ever, verging on manic-depressive, measuring the value of a company by its monthly profits rather than yearly performance. As a result, the number of public companies in the US has dropped by 40% since 1997. This means power is returning to companies' managers and CEOs, and that the stock market is losing its status as the center of American capitalism.
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