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Facebook's Shareholders Need Peter Thiel Now More Than Ever

|Includes: Facebook (FB)

The data breach scandal at Facebook is the biggest challenge the company has faced since going public in 2012.

Peter Thiel's decision to remain on Facebook's Board of Directors, despite his recent withdrawal from Silicon Valley, is a valuable asset for the company's shareholders.

Thiel's institutional memory, and more importantly, independent voice in the boardroom are critical in steering the tech behemoth to calmer waters during the current data breach scandal.

According to a report last month in The Wall Street Journal, acclaimed venture capitalist Peter Thiel is leaving Silicon Valley and diminishing his overall involvement in the tech industry. Nevertheless, according to those close to Thiel, he has decided to remain on Facebook’s board of directors as he still feels he can help the company. Although Facebook’s shareholders may not truly understand the import of Thiel’s refreshing perspective on board service, his continued presence of the social network’s board has become vital in the midst of a growing scandal involving the company’s role in the 2016 presidential election.

The Observer and New York Times reported this past weekend that Facebook has been aware for years that a third-party app exploited weak privacy settings on unsuspecting user accounts in order to accumulate more than 50 million user profiles. The app designer provided the profile data to Cambridge Analytica, an analytics and messaging firm with significant ties to friends of Donald Trump. Although it is unclear of what impact the breach may have had on the presidential election, federal regulators and state prosecutors are opening investigations. Facebook’s shareholders, already reeling from the disclosure this past fall that Russian propaganda potentially influenced the election through paid advertising, have reacted accordingly. Facebook has more than $50 billion in market capital this past week.

As with every corporation facing a scandal, what Facebook needs right now is a strong and effective board of directors. Fortunately, for Facebook’s shareholders, the company has one of the world’s most talented and prestigious board of directors, including such notable figures as: Kenneth Chenault, former Chairman and CEO of American Express; Reed Hastings, CEO and Chairman of Netflix; and Dr. Susan Desmond-Hellman, CEO of the Gates Foundation and former Chancellor of the University of California, San Francisco. However, Facebook’s longest serving non-executive director, is Thiel. The co-founder of PayPal made a $500,000 investment in Facebook in 2004 for a 10% stake in the company.

Interestingly enough, Thiel’s recent decision to leave Silicon Valley appears to stem from Thiel’s well-known conservative views and the fallout from his support for Donald Trump during the 2016 presidential election. It was widely reported that such support created tension between Thiel and his fellow board members at Facebook. Reed Hastings apparently sent an email to Thiel in 2016 in which he called Thiel’s support of Trump “catastrophically bad judgement” and questioned his fitness to remain on Facebook’s board.

Of course, the easiest path for Thiel to take after receiving Hastings’ email would have been to quietly leave the board. Why put up with the hassle? He certainly doesn’t need the money nor the prestige which comes with such a board appointment. Perhaps, it was a matter of personal conviction for Thiel. After all, despite how polarizing Trump has been, one’s personal political views or antipathy towards those of others, have no place in the boardroom. Directors are appointed to represent the best interests of all shareholders regardless of whether they are a Democrat or Republican.

Perhaps the reason why Thiel did not step-down from the board in 2016 is the very same reason why he apparently remains on the board today despite his withdrawal from all other things Silicon Valley – he still feels he can help the company. Imagine if all corporate directors held this perspective?

Whatever the reason, Thiel is undoubtedly a valuable asset in Facebook’s boardroom given the circumstances of the present day. His institutional memory, and more importantly, independent voice in the boardroom are critical in steering the tech behemoth to calmer waters. Facebook’s burgeoning calamity is exacerbated by the company’s somewhat unique stock structure which calls into question the independence of those in the boardroom. Instead of a one share, one vote system, Facebook has a much criticized dual-voting class structure through which Zuckerberg and a small group of insiders (mostly board members) control almost 70 percent of the voting shares in the company. Thiel is not one of these insiders – in fact, he has sold almost all of his Facebook stock.

Facebook, and corporate America, needs more well-intentioned corporate directors like Peter Thiel in the boardroom.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.