The board of the $241.3 billion California State Teachers’ Retirement System (CalSTRS) said it wants to be added as a plaintiff to a pending derivative case against Facebook’s leadership, including CEO and Chairman Mark Zuckerberg.
CalSTRS said that joining the suit would give it the opportunity to pursue corporate governance reform in order to “protect Facebook’s profitability, strengthen the resiliency of its business model, and enhance the long-term value of Facebook as a corporation.”
A derivative lawsuit is brought by shareholders on behalf of a corporation to remedy harm done to the corporation.
CalSTRS cited the Cambridge Analytica scandal, in which Facebook users’ private data was compromised, leading to a $119 billion drop in Facebook’s stock price—the largest single-day loss in market history.
“CalSTRS has engaged with Facebook on numerous occasions to press for core governance standards such as board diversity, board independence, and proportionate voting rights that are central to ensure accountability at public companies,” Aeisha Mastagni, CalSTRS’s portfolio manager of sustainable Investment and stewardship strategies, said in a statement. “We believe that weak corporate governance practices contributed to the misuse of private data and damage to Facebook’s bottom line.”
In July, the Federal Trade Commission (FTC) announced that Facebook agreed to pay a $5 billion penalty, and establish a board-level privacy committee as well as a board nominating committee. However, no individuals were held personally accountable, said CalSTRS.
“Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers’ choices,” FTC Chairman Joe Simons said in a statement at the time. “The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations.”
And in August, the Fireman’s Retirement System of St. Louis and retail investor Karen Sbriglio jointly filed an amended derivative complaint in the Delaware Court of Chancery against Zuckerberg, other Facebook leaders, and Facebook’s auditor PricewaterhouseCoopers.
“The settlement in FTC v. Facebook Inc. represents a first step, but more is needed,” said Kirsty Jenkinson, director of CalSTRS’s sustainable investment and stewardship strategies. “We are sending a message to all large corporations that good governance is good for business, and we expect that of any corporation within which we invest.”
CalSTRS has retained Kaplan Fox and Kilsheimer LLP as its counsel in the litigation.