CalSTRS Seeks to Join Lawsuit to Reform Governance Practices at Facebook
WEST SACRAMENTO, Calif. (August 20, 2019) – The Teachers’ Retirement Board today announced it will make a motion to be added as a plaintiff to a pending derivative case against Facebook’s leadership, including CEO/Chairman Mark Zuckerberg. A derivative lawsuit is brought by shareholders on behalf of a corporation to remedy harm done to the corporation.
The revelation of the Cambridge Analytica scandal, in which Facebook users’ private data was compromised, led to a $119 billion dollar drop in Facebook’s stock price — the largest single-day loss in market history. Intervening in the existing derivative suit will give CalSTRS 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.
“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,” said CalSTRS Portfolio Manager of Sustainable Investment and Stewardship Strategies (SISS), Aeisha Mastagni. “We believe that weak corporate governance practices contributed to the misuse of private data and damage to Facebook’s bottom line. This lawsuit represents an opportunity to gain greater protections for the public and investors that will build upon recent penalties imposed by the Federal Trade Commission (FTC).”
On July 24, 2019, the 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, but no individuals were held personally accountable. CalSTRS’ Corporate Governance policy includes litigation as a strategy to protect shareholders and corporate earnings. By joining the litigation, CalSTRS seeks additional reforms of Facebook’s board and share structure.
“The settlement in FTC v. Facebook Inc. represents a first step, but more is needed,” said SISS Director Kirsty Jenkinson. “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.”
On August 7, 2018, 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 Mark Zuckerberg, other Facebook leaders, and Facebook’s privacy auditor, PwC. Both investors welcome the addition of CalSTRS to the case.
CalSTRS has retained Kaplan Fox and Kilsheimer LLP (“Kaplan Fox”) as its counsel in the litigation. Kaplan Fox is a leading plaintiffs firm specializing in representing public pension funds in securities and derivative actions and has more than 40 years of experience litigating securities and derivative cases.
The California State Teachers’ Retirement System, with a portfolio valued at $241.3 billion as of July 31, 2019, is the largest educator-only pension fund in the world. CalSTRS serves California’s more than 949,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. A hybrid retirement system, CalSTRS administers a combined traditional defined benefit, cash balance and voluntary defined contribution plan. CalSTRS also provides disability and survivor benefits. CalSTRS members retire on average after more than 25 years of service, with a median retirement age of 62.9, and a monthly pension of approximately $4,475, which is not eligible for Social Security participation. For more data, download the Fast Facts 2018 brochure.
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