35 Pages Posted: 9 Sep 2022 Last revised: 31 Oct 2022
Date Written: September 8, 2022
Few companies still in business have a track record as negative as Facebook. Facebook has paid billions of dollars in government fines and paid hundreds of millions in private settlements. Yet, the financial penalties are actually minimal relative to the harm done. Facebook seems to have been involved one way or another in privacy breaches, organized crime, election manipulation, suicide, and even genocide. Mark Zuckerberg, who still controls Facebook, appears to ignore the consequences of his choices, seemingly prioritizing profits over people. He appears to disregard the law and operate without integrity or honesty, excommunicating insiders who speak out or challenge him. The evidence is powerful; the damage is arguably incalculable.
This article presents a case study of Facebook’s corporate governance and public scandals, concluding that the company’s governance is irreparably flawed. As the article documents, despite repeated scandals, apologies, and fines, Facebook’s board appears to have been unable or unwilling to break the cycle of bad decisions. The role of board members is to provide the candor and creative friction necessary to ensure legal compliance and self-regulation; yet, Facebook’s board seemingly does not. Accordingly, this article engages in a thought experiment, using Facebook as an example, about whether an outside-monitoring model might provide appropriate friction and counterbalance the otherwise apparently weak governance at the company. Using other monitoring programs as templates, the article explores the mechanisms key to effective monitoring. As the article reveals, corporate monitors have the capacity to reduce recidivism and improve corporate culture over the long term. They do this through independence, oversight, disclosure and transparency, engaging with the public and contributing to the development of a company’s social license. Of course, monitors are not a solution for every company, but when the governance flaws appear to be as sustained and systemic as those at Facebook, additional outside governance may be appropriate and, arguably, even necessary.
Keywords: corporate law, corporate governance, fiduciary duties, oversight, directors, monitor, recidivism, misconduct
JEL Classification: K00, K22
Suggested Citation: Suggested Citation