A power struggle between Facebook and investors just ended with Facebook dropping plans to issue non-voting shares (FB)

Facebook has dropped its controversial plan to create a class of non-voting shares in the face of a class action lawsuit brought by investors.

Mark Zuckerberg  (REUTERS/Stephen Lam)

Facebook has dropped its plan to create a class of non-voting shares that would concentrate CEO Mark Zuckerberg's majority voting rights in the face of a class action lawsuit brought by investors.

The decision means that Zuckerberg will stay at the helm of the company he founded and still be able to sell off millions of his shares to fund his philanthropic efforts, he said on Friday.

"Over the past year and a half, Facebook's business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more," Zuckerberg said in a Facebook post. "As a result, I've asked our board to withdraw the proposal to reclassify our stock -- and the board has agreed."

Facebook's stock price has risen over 50% since the company initially proposed to issue nonvoting shares in April 2016. As a result, Zuckerberg said he plans to accelerate his selling of shares to fund his philanthropic organization, The Chan Zuckerberg Initiative. He plans to sell 35 to 75 million shares over the next 18 months totaling between $6 to $12 billion.

“We're thrilled that Facebook has dropped the reclassification,” Stuart Grant, the lead lawyer representing shareholders in the case, told Business Insider in a statement. “Stopping the issuance of the non-voting C shares is all the relief we were asking for at trial. Today’s move is a total victory for stockholders.”

The move to drop the proposed reclassification on the eve of trial means that Zuckerberg and other Facebook insiders will not take the witness stand. Zuckerberg was scheduled to testify in Delaware Chancery Court on Tuesday, September 26, marking his second-ever public court appearance. Other Facebook board members, including Marc Andreessen and Erskine Bowles, were expected to testify in October.

"I thought it was the only way"

Mark Zuckerberg and Marc Andreessen.  (Reuters)

Originally filed in April 2016, the class action lawsuit sought to block Zuckerberg's plan to reclassify Facebook's stock structure and create a new class of non-voting shares. The proposed issuing of non-voting, Class-C shares would concentrate Zuckerberg's majority voting rights even as he sells 99% of his holdings over time to fund his philanthropic efforts.

"At the time, I felt that this reclassification was the best way to do both of these things," Zuckerberg said on his Facebook page Friday. "In fact, I thought it was the only way. But I also knew it was going to be complicated and it wasn't a perfect solution."

Last December, the lawsuit's discovery process surfaced controversial text messages between Zuckerberg and Facebook board member Marc Andreessen, who the plaintiffs have accused of surreptitiously coaching Zuckerberg through a negotiation process with a special committee to win board approval for the stock change.

Another revelation from the discovery process was that Zuckerberg has seriously considered holding some form of public office. Facebook's reclassification proposal included a clause that would let Zuckerberg serve indefinitely in public office while still maintaining control of the company.

Facebook's decision to settle follows in the footsteps of Google, which settled a similar lawsuit in 2013 over its plan to issue non-voting shares so that cofounders Larry Page and Sergey Brin could maintain their majority voting rights.