Among the risk factors in the Zynga (NASDAQ: ZNGA) 10-K is this:

The three class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to our initial public offering, including our founder and Chief Executive Officer and our other executive officers, employees and directors and their affiliates; this limits our other stockholders’ ability to influence corporate matters.

No matter how badly founder and Mark Pincus has fared as Zynga’s largest shareholder, all the firm’s other stockholders are at his mercy. As Facebook (NASDAQ: FB) releases earnings, investors will be reminded that CEO Mark Zuckerberg has an even stronger grip on the social network firm.

Pincus owns 74,085,846 Class B shares, 14.6% of the total, and 20,517,472 of the Class C shares, which represents 100% of that class. In all, his piece of the voting shares is 37.6%. Allies like LinkedIn (NYSE: LNKD) cofounder Reid Hoffman and venture capital firm Kleiner Perkins Caulfield & Byers hold enough stock that Pincus cannot be ousted as CEO, unless his closest allies turn against him. Even if that were to happen, the size of his holdings give him the upper hand.

Pincus gets credit for building a $1.3 billion annual revenue company. Now, he gets the blame for ruining it. The game company’s latest earnings showed revenue rose only 19% to $332 million. The company lost $22 million and issued a dismal forecast. Zynga’s stock fell 40% to $3, down from a post-IPO high of $15.91. Wall St. clearly believes the company is nothing more than trash now. Its core Farmville franchise has faltered. More recently launched products have been flops. Zynga has become like old-line game companies. Without one or more product mega-hits, Zynga is at the mercy of the consumer, as it always was. Rapid growth and the promise of social networks temporarily blinded investors to those things.

If Pincus ever had a strategic plan beyond Farmville, and the Facebook relationship, it has failed. After the poor earnings, he was unable to offer even the most modest future plans. Now, investors are left with an inarticulate CEO who has all of the power he needs to drive Zynga into oblivion.

By the way, Mark Zuckerberg can do that, too.

Douglas A. McIntyre

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