It is unclear how much the criticism will affect investors' willingness to park their cash in the fast-growing social networking company, which filed registration papers earlier this month for what is expected to be the largest initial public offering in Silicon Valley history.

"Even a strong distaste among institutional investors for the company's retrograde governance practices is unlikely to diminish the economic success of the IPO," the ISS analysts wrote.

A Facebook spokeswoman declined to comment on the report titled "Tragedy of the Dual Class Commons."

The ISS report follows criticisms by The California State Teachers' Retirement system, the second-largest U.S. pension fund, which has called on Facebook to expand its board of directors to include women.

The ISS report contends corporate-governance structures such as Facebook's, similar to Zynga or LinkedIn, will limit the rights of shareholders and cause problems if the company ever decides to change its structure.

In the case of Facebook, founder and Chief Executive Mark Zuckerberg will control about 57 percent of the company's voting shares after the IPO, according to its filing with the U.S. Securities and Exchange Commission.

Facebook also set up a series of defenses against proxy battles and unwanted takeover attempts.

"This is a governance profile with a defense against everything expect hubris," the ISS report said.

ISS argued that establishing a dual-class structure early on, in which Zuckerberg owns shares with 10 votes each, divides "ownership interests into potentially opposing groups," that could result in proxy fights down the line.

Facebook's governance is among the many facets of the company to land in the public spotlight, as it prepares to raise $5 billion in an IPO that could value the company between $75 billion and $100 billion.

Dan Niles, the chief investment officer of Alpha One Capital Partners, said the company's prospects for growing its number of users and its revenue are far more relevant to investors weighing whether to invest in Facebook than the company's dual-class structure.

"Of all the things to be worried about Facebook, that's the least of my concerns," said Niles. "At the end of the day you're betting on his ability to manage the company, whether you have a dual class structure or not," Niles said, referring to Zuckerberg.

Fans of the structure argue that it is appropriate in certain cases, such as when there are concerns that outside shareholders might push for short-term fixes that harm the longterm prospects of the company.

ISS "isn't going to like any provisions that take voting power away from the institutions it serves," said Lise Buyer, who worked with Google on its 2004 IPO, perhaps the most prominent example of a dual-class share structure in the technology sector. "That's sort of like asking Godiva to pronounce chocolate unhealthy."

She said that at the time of its IPO, Google received what it believed was the lowest ISS score ever. Its stock has gone from $85 a share to well north of $600 today.

Facebook's corporate governance committee is chaired by Don Graham, who is chief executive of the Washington Post, another company that has come under fire for its dual-class structure. Venture capitalist Marc Andreessen and Netflix Chief Executive Reed Hastings round out the committee.

(Reporting By Sarah McBride, with additional reporting by Liana B. Baker and Alexei Oreskovic; Editing by Derek Caney and Tim Dobbyn)

• A Permanent Economic Emergency