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Nasir and Matt discuss Mark Zuckerberg's decision to take two months of paternity leave, his pledge to donate99% of his Facebook shares to charity, and the alternative motive of Gravity's CEO to drastically raise the salary of allemployees.

Full Podcast Transcript

NASIR: Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha and we’re joined here with our maternity expert.

MATT: Paternity expert, right?

NASIR: Uh, no, you’re an expert in mothers expecting or having babies.

MATT: All right. Matt Staub, yeah, I’m here, which doesn’t apply to what we’re talking about today.


MATT: Your go-to is just listing expertise of mine in areas I have, well, I guess, I mean, it has a little bit to do today but not the topic.

NASIR: It’s the closest I can get.

MATT: Well, I mean, you could say “expert in MySpace.” I feel like that’s closer.

NASIR: Okay.

MATT: I was looking, you know, we’re going to talk mostly about Facebook – well, mostly about Mark Zuckerberg but do you know the last time we talked in detail about Facebook? Do you remember? This is Episode 241. It’s been a while.

NASIR: Maybe one of their acquisitions of Instagram or something? I don’t know.

MATT: The one I found when I searched our previous ones was the malicious prosecution lawsuit they were trying to file against DLA Piper who represented that guy who claimed 84 percent ownership of the company who I looked up and now they describe him as “now fugitive businessman.” It hasn’t gone well for him post-lawsuit.

NASIR: Did we ever find out what’s happened to that lawsuit?

MATT: Well, I just looked, and this was earlier in the year because Facebook filed that malicious prosecution suit against DLA Piper and the judge refused…

NASIR: The law firm, yeah.

MATT: I think the judge refused to throw it out.

NASIR: Okay. So, it looks like the case is going on.

MATT: Yeah.

NASIR: Yeah, that was an interesting story.

MATT: You know, you think about it, and we talk about this all the time but why would Facebook even bother with it at this point? But this is a good example. They need to set the precedent that they’re not going to put up with this stuff. They obviously have the money to handle it.

NASIR: Definitely makes a law firm think twice about bringing something like that again.

MATT: So, Facebook, you know, there’s a couple of things here and Mark Zuckerberg and it’s been in the news a lot the last couple of weeks and there’s a couple of things. The first was what you had mentioned earlier at the beginning. They had their kid a couple of days ago, I think – earlier this week of recording, right?

NASIR: I think it was more than a couple of days but, yeah, definitely recently.

MATT: Yeah. And so, he had come out and said that he is going to take a two-month paternal leave, I believe.

NASIR: Yeah.

MATT: Which is pretty crazy and I believe I saw that the company offers up to four months of paid paternal leave so that’s pretty big. But I think one of the big things a lot of people are discussing is, you know, this is a big step towards acceptance of this sort of leave for the men because I think there’s some sort of stigma attached to men taking time off after the birth of their child. People might look at that in a different way as opposed to the mother who would do it. But I’m sure there’s been many instances of the father who wanted to do this and just felt so obligated that they couldn’t. This is clearly a step in that right direction for more men to do this.

NASIR: Yeah. But, at the same time, it’s almost crazy to think that a CEO of a company would be able to take let alone a week even let alone two months off of their job whether it’s a male or a female, right? Obviously, Zuckerberg is probably in a little more unique position. I think all of our status updates will still go through whether Zuckerberg is on the job or not. My assumption is that he’s in a little bit more of a privileged position than most people in the country.

MATT: I think that’s a good guess there.

NASIR: I think so.

MATT: I would be surprised, I would be shocked if he just cut off communication for two months and then shows back up two months later and checks his email for the first time. There’s no way the CEO of one of the biggest companies could take two full months off without any sort of contact or involvement whatsoever.

NASIR: I do feel though, in the recent years, I know Zuckerberg has taken a little bit of a step back as far as the day-to-day operations so I wonder if that has something to play in. But, nonetheless, one thing that you’re definitely right about is this has been publicized. I mean, obviously, we’re talking about it in a way that I don’t think has been done before. You have a high-profile person having their first child and they take off a couple of months. It also highlights Facebook policy of their paid paternal leave – I’m sorry, paid parental leave for both fathers and mothers – and that’s very unique, by the way. I think most people know this – probably not – but even where there is a requirement by state for some employers – like, for example, in California, you have certain types of family medical leave for fifty employees or more, you do have a pregnancy disability leave for I think five or more employees in California as well but, most of the time, those are unpaid leaves. For it to be paid on top of having more than what the minimum is is pretty remarkable.

MATT: The only real downside of this is they’re not going to be around working if they’re a key component of the company. Is the company going to suffer as a result? But, like you said, you get the time off with your recently born child and you also get paid. It’s not a classic Michael Scott win-win-win because, like I said, you don’t know how the company is going to be but it’s a win-win question mark is how I look at it.

NASIR: I mean, that’s true, and it’s hard to see where exactly we’re going as a country on this because, if you look at a very global perspective of modernized countries, we’re pretty far behind or far from providing any kind of substantial benefits for family leave on a federal level, on a national level. But there is some cultural differences because there a lot of people that feel that this kind of leave – maternity and paternity leave – would be important for them. But then, there’s also some that feel that being in a managerial or executive position, they would be reluctant to take such leave because of just the ramifications. Even if you’re entitled to it by law, it’s the same thing – you’re taking off from the company and the company may be negatively impacted by something like that which is why, by the way, a lot of the implications for these kinds of benefits on a state level does have this high employee requirement because, obviously, if you’re a small, small business, even one employee being gone – and, on top of that, if it’s paid leave – would really be disruptive.

MATT: We’ve talked about something similar before with the trouble with companies forcing… they basically would have to force employees to take vacation time even when it’s paid because employees don’t want to leave work and don’t want to take that time off. I mean, it’s not the exact same thing as this but it’s along those lines and it’s different where you’re Mark Zuckerberg and, you know, you have control of this ginormous company as opposed to here’s somebody who is just an employee. If your company has the policy of you being able to take time off and you do, you can’t be penalized for that but I think that lingers in people’s heads and how will that be perceived, like you said, and what will be the ramifications of it? It’s something to think about. So, I think his decision is helping in that sense.
You know, what’s funny is you – well, I think it’s unknowingly that you made a nice transition albeit a few minutes ago of his involvement because this other issue with Zuckerberg is this quote he has of “I will continue to serve as Facebook’s CEO for many, many years to come, but these issues are too important to wait until you or we are older to begin work,” and this has to do with his pledge earlier in the week – or I guess, when this comes out, last week – about him and his wife are going to donate 99 percent of his Facebook shares by the end of his lifetime to this Chan Zuckerberg Initiative which also got a lot of attention.

NASIR: Yeah, and what’s interesting about this kind of donation is I think there’s a couple of issues here.

MATT: Right.

NASIR: First is, by giving away 99 percent of his stock, what about control over his company, right? What’s interesting about, maybe if you’ve purchased a Facebook stock, you are already aware of this but there are different classes of shares but I’m not getting into the details. Bottom-line is that Zuckerberg owns a class of shares which basically, even with a super minority one percent of the ownership of Facebook or a very small amount, he still has a super majority control and what that equates to is, even though, from a distribution perspective or ownership percentage, if the company is bought out – not that that’s going to happen or anything like that – that’s his percentage. But when it comes to actually voting or control, it’s on a much different scale. Completely throws out the percentage ownership out the window and that’s actually a very common tactic in how you maintain control of your company. And so, it’s unusual for a publicly-held company but not unusual for a privately-held one.

MATT: Yeah, I knew that was going to be your first thought is, “What about the control?” because I know that’s always your first thought.

NASIR: Yeah, of course.

MATT: It was mine, too. I thought to myself, “Obviously, there’s got to be something in place where he’s not going to lose his voting power.”

NASIR: Yeah, Zuckerberg is covered somehow.

MATT: Because how would that work? Well, I use the word “charity” loosely and we’ll get into that but these people or these companies he’s going to give these shares to, are they going to be able to vote? Obviously, that’s not the case.

NASIR: Yeah.

MATT: I think, right now, he’s got 60 percent of voting control of Facebook. He’s obviously going to maintain that control. Going back to this quote about him maintaining being CEO and things like that. You said there was a few interesting things about this. One of the other ones is how it was set up. I said the name Chan Zuckerberg Initiative. It’s actually an LLC. I’m not too involved in the charitable foundation side of things but my guess is that’s not too common. I mean, there’s tax reasons that’s incentive for setting up things – you know, a charitable foundation, charitable trust, things like that – and so the fact that it’s a just flat out LLC is not the common route I would guess.

NASIR: Oh, no. You know, typically, when we talk about non-profits, everyone understands that, you know, these entities are typically tax-exempt. Of course, an LLC is not. I was looking into this and even though a lot of people reacted like, you know, “Hey, you’re not really giving it away to charity because you’re giving it to your LLC or whatever and it can still make investments and so forth,” I think that was a little unfair because, if you look at his reasoning, it actually makes sense quite a bit, especially to lawyers. For non-profits, especially to be recognized by the federal government as a tax-exempt organization, being involved in politics, for example, cuts you out of that category. And so, an LLC, of course – you know, as far as how the law is now until maybe the Supreme Court changes its mind – is that an LLC can contribute to campaigns, can contribute to all these different advocacy groups and politics and may further certain charitable goals that Zuckerberg has where he wouldn’t be able to do otherwise without it. In addition to that, also invest into companies that do the same thing – whether it’s a solar power company that he believes that needs a little bit of infusion of capital and so forth.

MATT: Yeah, you said he’s interested in personalized learning, curing disease, connecting people, and building strong communities. But, yeah, you’re exactly right; the way he set this up allows him to really expand where he gives this money to. He’s like, “Yeah, we’re going to pay capital gains tax and transferring these shares.” I mean, that’s whatever. What’s the value? Isn’t it around $45 billion or something crazy like that?

NASIR: Yeah, and it’s going to be spread out over time. You know, I don’t think Facebook actually produces a dividend.

MATT: This is what I was wondering, yeah.

NASIR: How is that Facebook share actually worth money? Somehow, it’s going to have to be sold and liquidated somehow, I assume. I didn’t really get deep into that but obviously there’s some value to it.

MATT: I’m sure they’ve thought this well in advance on how it’s going to be done and it’s going to be I think a slow roll-out. I know there was definitely a restriction on the first three years. It was no more than one percent a year or something like that. It was a lower amount. It’s definitely going to be back-weighted.

NASIR: Yeah.

MATT: He’s not giving up 99 percent of his shares tomorrow.

NASIR: No doubt. He signed a pledge amongst other multi-billion-dollar owners and CEOs along with Bill Gates to kind of give away a majority of their wealth to charity and so forth. We talked a little bit about intention and his intentions have definitely been questioned and so forth but, hey, I mean, it’s 99 percent better than what everyone else does, you know. It’s very hard to kind of knock his efforts.

MATT: Or saying that, you know, within a couple of days of him doing that open letter or whatever it was, who knows what will actually happen because that’s what happened with another CEO we talked about previously, right? We talked about him, didn’t we? Dan Price?

NASIR: Yeah.

MATT: With Gravity. Apparently, Gravity is real – not the company, just gravity does exist.

NASIR: I knew that.

MATT: Yeah, there were some questions on whether that’s the case. If you don’t remember or if you didn’t listen the first time, Gravity was the company and Dan Price was the CEO where basically said, “I’m raising the minimum salary of everyone that works, all the employees that work for me up to $70,000 a year,” Was this in Washington State? I can’t remember.

NASIR: Yeah, I remember it being in the northwest.

MATT: Yeah. So, you know, people were making far less than this and I think, well, I was going to say the reason this happened but we’ll get into that but I know one of the things was he was talking to a friend of his and he was just making so little and said, “Oh, we’ll just raise everything up and it will be good,” and he went on this huge – I think this was when we talked about it before – went on this huge PR campaign and got praise on every show on TV and patted on the back. It’s great. I’ll put a link to this story in the show notes because this is a pretty long interesting story that Bloomberg Business did about the motivation behind raising this but it’s a couple of things. There’s this lawsuit with his brother which is pretty interesting and I guess one other fact I should say as well before you get into it is part of the deal was he decreased his salary immensely and I’m trying to find the exact numbers.

NASIR: Didn’t he decrease his to the minimum, too?

MATT: He did but I’m saying what it was before, it was over a million, right?

NASIR: Okay, yeah.

MATT: So, that was an issue as well. I guess they hired a compensation consultant to look at his salary for significant raises over the 1.1 million. There’s a few things going on and we’re not completely sure. Well, actually, we are kind of sure what the timeline is because there is, what, a complaint that was received from his brother but then I guess how it works in Washington is you can serve them before filing the lawsuit, is that how it works?

NASIR: That’s definitely unique for me. I was trying to figure that out myself as well.

MATT: Yeah, it was weird because he’s like, “Well, look at the timing of everything. I got sued after.” It’s like, “Well, we have this document here and you were served before,” and it’s all this thing but it’s interesting now that this story is coming out and so maybe his intentions weren’t as noble as first expected.

NASIR: It’s definitely suspect and, if you kind of compare that to what Zuckerberg is doing, it definitely makes it pretty interesting.

MATT: Yeah. Like I said, it’s a pretty interesting full read and I guess this person interviewed, well, at least talked to him on the phone. By the time this episode comes out, it looks like there will be some more information that will possibly be released in regards to his ex-wife which, like I said, who knows about the truth of any of this stuff but it’s a very interesting reveal after this great good he did for all these employees. You know, keep in mind too, it sounds like this place isn’t even a good spot to work for. I mean, they’re getting paid a lot more but I think they described it as it’s not very glamorous.

NASIR: Well, it’s definitely a different picture than what I think even we kind of described of how great it would be for everyone to be making that amount of money as a minimum wage but it definitely paints a different picture.

MATT: Yeah, and I guess I should follow up, too. The lawsuit with his brother is dealing with his compensation. They’re alleging he improperly used his majority to control the company to overpay himself, also reducing what his brother was due. I mean, that’s conveniently all this great idea he had all came around right after I guess in this middle ground of being served and the lawsuit you have yet to be filed which is very weird but I guess that’s how it works there.

NASIR: I think he did respond saying that he never increased his salary without having a full unanimous consent of the board or something to that effect.

MATT: Yeah.

NASIR: Obviously, there’s two sides to this story.

MATT: Yeah, worth your time to read it. There’s a bunch of weird pictures of him, too. It’s always fun.

NASIR: Ah. I kind of wanted to mention more stuff about parental leave but I think everyone knows about that. I mean, I was trying to see if there was any kind of legislation going to be passed or not. It looks like there’s some bills in the house in the Senate that are kind of floating around there but I’d just be really surprised. I mean, right now, we have that parental leave already that’s unpaid for fifty or more employees under federal law. Obviously, I think that’s not necessarily sufficient but I think there’s going to be some changes. This is going to be hard to pass that paid leave gap.

MATT: Yeah. I mean, that’s obviously the big thing. It’s the paid aspect of it because that completely changes everything, especially like you said, it has to be for bigger companies, but even then, bigger companies, if you have a key person gone, I mean, I guess your options are to try to have everyone else chip in, try to hire a temp. I mean, try to hire a temp person for a couple of months is going to be tough.

NASIR: Yeah, because when it comes to a paid leave, it doesn’t necessarily have to come from the employer. I mean, like, in California, you can have some through disability benefits which, of course, is indirectly paid through taxes – whether it’s payable tax or whatever. But, still, there’s different ways to do it. I think we all agree, it’s a tough ask. I mean, people don’t even want to raise the minimum wage, let alone add in this kind of benefit which can be pretty disruptive.

MATT: Yeah.

NASIR: Any kind of real aggressive action in this would definitely affect people’s efforts of equal pay or fair pay between men and women. Even though it’s pretty common for certain racial slurs or ethnicity slurs in the workplace to not be accepted, what still seems to be tolerated is this concept of this concern of female workers getting pregnant and that’s still, just from my personal experience with our clients and things like that, that’s still something that’s kind of accepted or more prevalent than you would think so I think that would also be a concern, especially with California passing its Fair Pay Act being effective this January. Well, anyway, I thought we were done with our episode but I guess we’re not.

MATT: Well, if anyone listened all the way to the end, they got that last little nugget from you.

NASIR: They got the sandwich of parental leave.

MATT: Yeah, that’s what it was – parental leave sandwich.

NASIR: But you can’t call it a parental leave sandwich because, usually, whatever kind of sandwich it is, it’s what’s in the center, right?

MATT: Yeah, it was a CEO sandwich on parental leave bread.

NASIR: There we go. Thank you for clarifying that.

MATT: Yeah.

NASIR: All right.

MATT: Keep it sound. Keep it smart.

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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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