The spotlight is once again on Meta Platforms as a landmark shareholder trial kicked off this week in Delaware. Investors are seeking over $8 billion in damages, claiming the company’s board, including founder Mark Zuckerberg, failed to protect the company and its users during a privacy scandal that rocked Facebook in 2019.
In 2019, Facebook, now Meta, reached a $5 billion settlement with the FTC to resolve accusations it had violated a 2012 agreement to better protect user privacy. While the penalty was historic, it notably excluded Zuckerberg from personal liability. That, investors now argue, was a red flag.
The current trial alleges that Meta’s board not only failed to prevent the misuse of user data but also acted to shield Zuckerberg from consequences. Plaintiffs, a group of institutional investors including union pension funds, claim the board’s inaction caused Meta to absorb billions in fines and legal fees unnecessarily.
Inside the courtroom: Board actions under fire
On the first day of the nonjury trial, former Meta board member and current White House Chief of Staff Jeffrey Zients was the first to testify. He defended the board’s decision-making, stating that while the FTC initially pushed for “tens of billions of dollars,” the $5 billion settlement was a strategic move to protect the company’s long-term growth.
Zients emphasized that Zuckerberg had done nothing wrong and that keeping him was critical for the company’s direction. However, plaintiffs argue the board’s willingness to pay such a large sum without pushing back or pursuing other options signaled negligence.
Legal experts say the case is built around what’s known as a “Caremark claim,” a rarely successful legal theory in Delaware law that accuses directors of failing their duty to oversee corporate operations. This trial marks one of the few times such a case has reached court.
Bigger implications for shareholders and corporate boards
The trial is drawing national attention not just because of Meta’s profile, but because of what’s at stake for corporate governance more broadly. If the shareholders succeed, it could open the door to more lawsuits challenging how boards respond to internal crises, especially when top executives are also controlling shareholders.
Adding to the tension, Delaware recently passed reforms to limit shareholder challenges in some cases, a move partially driven by growing concerns over tech company influence. Notably, venture capital firm Andreessen Horowitz, co-founded by defendant Marc Andreessen, announced it’s moving from Delaware to Nevada, citing what it called “uncertainty” in the state’s courts following high-profile cases like Elon Musk’s Tesla pay ruling.
Meta’s leadership under legal microscope
Judge Kathaleen McCormick, who famously voided Musk’s $56 billion compensation package earlier this year, is overseeing the trial and will decide on both liability and potential damages. While a decision isn’t expected for months, the outcome could have ripple effects across Silicon Valley and beyond.
For now, Meta is staying quiet, reiterating only that it’s invested billions into privacy improvements since 2019. But the courtroom battle is just beginning, and with billions of dollars on the line, the stakes for Meta’s board and the future of corporate accountability couldn’t be higher.
