Doing well by doing good
U.S. President Barack Obama might find an exceptional friend in Facebook. The social network’s second-in-command, Sheryl Sandberg, should be on the short list for a top economic job if he wins a second term in office. Yet she’d potentially give up some $130 million in unvested equity to take the job. Her boss Mark Zuckerberg could bridge the gap. But it may cost Facebook shareholders dearly.
Sandberg certainly is qualified to assist the Obama administration. She worked at the Treasury from 1996 to 2001, serving as chief of staff. Since then her star has soared, first with success as a Google executive, and for the past four years as the adult in the room at fast-growing Facebook. The growing importance of technology in the U.S. economy could easily make her look like an inspired choice for an administration that has been criticized for not understanding the private sector.
Whether Sandberg is interested in uprooting is a good question. While she’s shown a proclivity for public service, participating in the white heat of technological revolution is intellectually and personally rewarding. And this year she built a 9,200-square-foot mansion in Menlo Park. Happily for Sandberg, high levels of government are also full of bright people. While negotiating budget deals can be painful, serving the country offers rewards for the soul.
The financial benefits of Washington obviously don’t compare. But serving at Facebook has left her rich. Sandberg received 38.1 million units of Facebook restricted stock units (RSUs) in 2008. By the inauguration of the next president in January, more than 95 percent will have vested. At the current share price, the total value of the RSUs that have vested would be about $800 million. RSUs are taxed as normal income when they vest and employees receive shares.
If Sandberg accepted an invitation to Washington, Facebook might take the bigger financial hit. The company is struggling to generate revenue from its users’ shift from computers to mobile devices. So Sandberg’s premature departure would be viewed badly, since Wall Street sees her as the social network’s chaperone. What’s more, more than 1 billion shares held by insiders may be on the block in the next half year. Any sales by Sandberg could add to the downward pressure on the stock, which has fallen from $38 at its May IPO to around $22 today.
When Hank Paulson left Goldman Sachs to lead the Treasury in 2006, the bank accelerated the vesting of his equity. There’s no precedent at Facebook for a similar move, but the stakes are higher. Sandberg holds 3.5 million options with a strike price of $10.39 and 1.2 million in the money at $15. The total value of these options using a Black-Scholes model, plus unvested RSUs granted in 2008 and 1.2 million in 2011 using Facebook’s current stock price, would be about $130 million.
Zuckerberg controls a clear majority of Facebook’s votes, so the compensation committee and board would certainly consider his wishes should he want to accelerate the vesting of Sandberg’s equity. That might not be great corporate governance. Then again, having a happy, highly-placed friend around the White House could be useful indeed.