Why Investing In Facebook Might Be A Bad Bet - Spokane, North Idaho News & Weather KHQ.com

Why Investing In Facebook Might Be A Bad Bet

MSNBC.COM - Investors, social media watchers and Facebook users may be looking forward to the social network's expected public stock offering later this year, but corporate governance experts aren't quite so enthusiastic.

Earlier this month, Facebook filed for a $5 billion IPO -- a deal that would be one of the biggest public stock offerings ever and values the social media juggernaut at about $100 billion.

Those sorts of numbers, coupled with the company's strong brand name, are likely to draw interest from individual investors eager to buy a piece of the company. Governance experts caution, however, that while buying a hot company like Facebook feels good now, potential investors should be wary of the stringent executive control structure outlined in the company's IPO registration document.

"Right now you have a situation at Facebook where there's a benevolent dictatorship, but my concern is they tend to become malevolent dictatorships, and that can hurt you when it comes to the pinch," said Aswath Damodaran, a professor of finance at New York University's Stern School of Business.

Damodaran notes that, based on information in the company's filing with the Securities and Exchange Commission, Facebook's founder and Chief Executive Mark Zuckerberg would retain complete control of the company for the foreseeable future and would even have the right to appoint his own successor before he dies.

Facebook has also set up defenses against takeovers and proxy fights, when shareholders unite to force changes at the directorial and management level. click here to read more

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