MGMT4813 UCO Corporate governance and business ethics challenges at Facebook

timer Asked: Feb 8th, 2019
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Question Description

Read the attached article about corporate governance and business ethics challenges at Facebook. Use this and additional sources to answer the following questions.

  1. Based on the assigned readings and lecture notes, identify and discuss Facebooks’s key stakeholders.
  2. Based on information provided in the article, how did the firm prioritize its key stakeholders prior to this scandal? Explain your answer.
  3. Describe the legal and ethical issues related to Facebook’s use of customer data.
  4. What policies should the board of directors implement to prevent future abuses of customer data? How does Mark Zuckerberg’s role in the firm as a major shareholder and CEO complicate these efforts?
  5. What policies and procedures should the firm implement to prevent future abuses of customer information? Explain your answer.

Style Requirements

  1. Written assignments must have an introduction and a conclusion paragraph. Note that these paragraphs must be separate from the body of the paper in which you answer assigned questions.
  2. The written analysis may be up to 5 pages and no less than three in length, excluding exhibits (no limit).
  3. Use a 12 point font and have one inch margins.
  4. Papers must be typed with double spaces.
  5. You absolutely must include a list of references at the end of the paper. Use the APA style. For example references, please refer to the APA style tutorial available at Use a minimum of four (4) credible outside reference sources.
  6. Use page numbers and put your name on the first page of each assignment.

Unformatted Attachment Preview

The Washington Post PostEverything Perspective The Facebook scandal isn’t really about social media. It’s about capitalism. By Jacob Silverman As wizened consumers, we’ve learned to be cynical about the commodification of our privacy at the hands of tech corporations. Still, it’s one thing to know in principle that industry giants like Facebook are spying on practically everything we do and say; it’s quite another to see it in action. But that’s just what we have, thanks to recent reporting by the New York Times, which revealed how Mark Zuckerberg, who’s expected to act as the trusted custodian of the personal information of more than 2 billion people, has allowed his company’s partners — Netflix, Amazon and Spotify, among many others — access to users’ most intimate communications. Some arrangements enabled Facebook’s partners to read and delete users’ private messages; others had access to users’ friends and their data. In some cases, the deals appeared to be so broad that Facebook’s partners claimed that they weren’t even aware that they had access to certain data streams. The Times’ reporting offers a necessary window into the surveillance economy and the emerging economic logic of “surveillance capitalism.” We are beginning to see how the trade in data — much of it done behind the scenes — is also an exchange of influence and power. We are becoming aware of companies’ astonishing information appetites, according to which all data is potentially useful. Even carmakers like Ford are beginning to tout consumer data as a major revenue stream on par with the selling of automobiles. In other words, the Times’ reporting doesn’t just implicate Facebook: It’s an indictment of the whole economic system in which we participate today. None of that is to let Facebook off the hook, of course. The latest reporting has grim legal implications for the company, especially since it is operating under a consent decree with the Federal Trade Commission in which it essentially pledged to guarantee users’ privacy and to enact a comprehensive privacy program. There’s little evidence that agreement has been respected. The overall picture is of a digital marketplace overseen — with varying degrees of inattention — by Facebook, in which it gives access to its customers to whomever will pay. Facebook may not be selling bulk user data directly, but it’s giving outside companies the ability to gather information en masse about its users. That amounts to almost the same thing. (And these deals were concealed from users.) For Facebook, scale is everything, so it had every incentive to allow other companies access to its users, provided they did it on Facebook’s terms. And from its Beacon scandal in the late aughts to more-recent questions over Cambridge Analytica, Facebook has shown a tendency to act first and offer a pro forma apology later. Years of self-regulation have revealed that the company is incapable of restraining its appetites or of seeing its users as anything but a resource to be mined. The same might be said of Google, which has its own history of overzealous data collection. In an era when consumers are increasingly transparent to the companies that furnish them goods and services (not to mention their governments), perhaps we should expect scandals such as these. But we shouldn’t allow that foreknowledge to become an excuse for complacency. Most people still have no idea to what extent their communications and everyday behaviors are being monitored, nor do they understand how personal data is in turn leveraged for targeted advertising, credit scoring, police threat assessments and job applications. Companies like Facebook and Google are now using anything from search histories to fluctuations in WiFi signals to try to anticipate where we are and where we’ll go next. To be a modern consumer is to be watched, but the last year’s scandals have shown that coercion and secrecy are part of the bargain. In a lecture this year, Shoshana Zuboff, the author of a forthcoming book about surveillance capitalism, said that the manipulation endemic to the surveillance economy puts the lie to the once widely accepted notion that social networks are naturally democratizing and empowering. “Digital connection,” she explained, “is now the brazen means toward others’ market ends.” More galling, Facebook hides behind the benevolent rhetoric of emancipation and connectivity as it frisks us for our most intimate information. Connectivity seems less like a human right, as Zuckerberg has argued, than like a means to surveil a good chunk of the world’s population. As Facebook generates billions in profits by exploiting access to our attention and our personal lives, it tells us this arrangement is good for us. It’s long past time to ask why we ever believed them. Jacob Silverman Jacob Silverman is the author of "Terms of Service: Social Media and the Price of Constant Connection." Follow  MGMT 4813 STRATEGIC MANAGEMENT CORPORATE GOVERNANCE AND BUSINESS ETHICS Sharon D. James, PhD, CFA 1 STAKEHOLDERS AND FIRM PERFORMANCE ▪ Stakeholders: Individuals or groups with an interest, claim, or stake in the company ▪ Key stakeholders: Stakeholders that have a direct or indirect impact on firm profitability. Priority is given based on the most direct influence on performance. ▪ Priority: Customers, suppliers, employees, communities in which they live, government/regulators, creditors, and stockholders ▪ Fallacy argument: The firm’s priority (fiduciary duty) is first to its stockholders. This logic is inconsistent with priority in liquidation where all other stakeholders have priority of claims over stockholders (the residual claimants in bankruptcy liquidation). Stakeholder theory follows more closely to the legal definition of priority (i.e., fiduciary duty). 2 AGENCY THEORY ▪ Deals with conflicts of interest when decisionmaking authority is delegated from one stakeholder to another ▪ Most common agency issues arise between owners/stockholders and managers: ▪ Stockholder – Principal and Senior managers – Agent ▪ Internal agency problems involve delegation of authority from senior managers to lower level managers 3 AGENCY PROBLEM ▪ Information asymmetry: Agent has more information about the resources being managed than the principal ▪ On-the-job consumption: Describes the behavior of senior management’s use of company funds to acquire perks ▪ Empire building - Buying new businesses to increase the size of the company through diversification 4 CHALLENGES FOR PRINCIPALS ▪ Shaping the agents’ behavior to act in accordance with the firm’s strategic imperatives ▪ Reducing information asymmetry and preventing abuses of power ▪ Developing mechanisms for removing agents who do not act in accordance with firm strategies 5 ETHICS AND STRATEGY Ethics • Accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization Business ethics • Accepted principles of right or wrong governing the conduct of businesspeople Ethical dilemmas • Situations where there is no agreement over exactly what the accepted principles of right and wrong are 6 ETHICAL ISSUES IN STRATEGY ▪ Arise from potential conflict between: ▪ Firm goals and objectives ▪ Goals of individual managers/employees ▪ Fiduciary duty to key stakeholders ▪ Ethical dilemmas arise from conflicts between what is necessary in the ordinary course of business and what is prudent with respect to the best interest of key stakeholders ▪ Government regulations where questions of illegality may not be clear cut ▪ Contingent (future potential) liability resulting from firm actions may not be currently quantifiable 7 A FIRM’S FIDUCIARY DUTY AND RIGHTS OF KEY STAKEHOLDERS Stakeholders Rights Stockholders • Timely and accurate information about their investments Customers • Be fully informed about the products and services they purchase Employees • Safe working conditions • Fair compensation for the work they perform • Just treatment by managers Suppliers • Expect contracts to be respected Competitors • Expect that the firm will abide by the rules of competition and not violate the basic principles of antitrust laws Communities and the general public • Expect that a firm will not violate the basic expectations that society places on enterprises 8 EXAMPLES OF UNETHICAL BEHAVIOR ARISING FROM AGENCY PROBLEMS Self-dealing • Managers pursuing personal benefits at the expense of the firm, customers or other key stakeholders Information manipulation • Managers use their control over corporate data to distort or hide information to enhance their personal financial condition or the competitive position of the firm Anticompetitive behavior • Aimed at harming actual or potential competitors to enhance the long-run prospects of the firm Opportunistic exploitation • Managers rewriting the terms of a contract to make it favorable to the firm to the detriment of key stakeholders (e.g. bundled vs. unbundled prices often amount to unfair treatment of customers) 9 EXAMPLES OF UNETHICAL BEHAVIOR ARISING FROM AGENCY PROBLEMS Substandard working conditions • Managers underinvest in working conditions or pay employees below-market rates • To reduce their production costs Environmental degradation • Occurs when a company’s actions directly or indirectly result in pollution or other forms of environmental harm Corruption • Can arise when managers pay bribes to gain access to business contracts 10 ROOTS OF UNETHICAL BEHAVIOR ▪ Personal ethics: Generally accepted principles of right and wrong governing the conduct of individuals ▪ Personal ethics develop from how we were raised by our families or care givers ▪ Failing to ask oneself if a decision is ethical ▪ Some organizational cultures reward winning by any means necessary, thereby de-emphasizing business ethics ▪ Pressure to meet unrealistic performance goals ▪ Unethical leadership from top-level managers 11 STAGES OF MORAL DEVELOPMENT © Thinkstock BEHAVING ETHICALLY ▪ Favor hiring and promotion with a well-grounded sense of personal ethics ▪ Build an organizational culture that places a high value on ethical behavior ▪ Code of conduct/ethics: Formal statement of the ethical priorities to which a business adheres ▪ Ensure that leaders practice and preach ethical behavior 13 BEHAVING ETHICALLY ▪ Ensure people consider the ethical dimension of business decisions ▪ Use ethics officers ▪ Put strong governance processes in place ▪ Include a code of conduct/ethics committee on the board of directors ▪ Tie performance appraisal and promotion to ethical outcomes ▪ Implement checks and balances to ensure fair business practices (e.g., customer surveys to ensure quality service) ▪ Establish clear policies on the consequences of unethical behavior and act swiftly to correct abuses before mandated by regulators or courts 14 BEHAVING ETHICALLY: ENRON CORPORATE SCANDAL The Smartest Guys in the Room recounts how the unscrupulous behavior of Enron’s senior leadership resulted in, at the time, the largest corporate collapse in American history. Enron’s success was a mirage built through accounting loopholes, networks of shell companies, and questionable audit practices that allowed senior executives to hide billions of dollars in losses from failed deals and projects. BEHAVING ETHICALLY: ENRON CORPORATE SCANDAL Enron eventually declared bankruptcy in December 2001. Many employees lost their pensions and life savings in what many consider the greatest securities fraud of all time. The fallout from the corporate governance failings at Enron and other companies created a renewed interest and focus on the role of ethical business practices. Executives now bear personal responsibility for the accuracy of all financial reporting within their companies, and corporate boards are now required to fill the majority of seats with independent directors. THE MARKET FOR CORPORATE GOVERNANCE • Sarbanes-Oxley Act is a law that set new or increased standards for the boards of public US companies and accounting companies. © Thinkstock CORPORATE GOVERNANCE MECHANISMS ▪ Used by principals to: ▪ Align organizational incentives with agents’ personal incentives ▪ Monitor and control agents’ (ethical) behavior ▪ Between stockholders and senior managers ▪ Board of directors, Stock-based compensation, Financial statements/audits, corporate takeover constraint ▪ Between senior managers and lower level managers ▪ Code of conduct/ethics ▪ Strategic control and monitoring systems ▪ Award ethical behavior and create an environment for reporting abuses 18 BOARD OF DIRECTORS ▪ Inside directors: Senior employees of the company ▪ Outside directors: Not full-time employees of the company ▪ Provide objectivity to the monitoring and evaluation of processes 19 STOCK-BASED COMPENSATION ▪ Stock options: Right to purchase company stock at a predetermined price at some point in the future ▪ Strike price - Stock’s trading price when the option was originally granted ▪ Motivate managers to adopt strategies that increase the share price of the company ▪ Has become increasingly controversial ▪ Aligns management and stockholder interests 20 FINANCIAL STATEMENTS AND AUDITORS ▪ Quarterly and annual reports of publicly traded companies are filed with the SEC: ▪ to give accurate information about the way the agents run the company. ▪ SEC requires that the accounts be audited by an independent and accredited accounting firm: ▪ to make sure managers do not misrepresent the financial information. 21 TAKEOVER CONSTRAINT ▪ Risk of being acquired by another company ▪ Corporate raiders - Purchase large blocks of shares in companies that appear to be pursuing strategies inconsistent with maximizing stockholder wealth ▪ Greenmail: Pushing companies to either change their strategy to benefit stockholders, or charging a premium for the stocks when the company wants to buy them back 22 INTERNAL GOVERNANCE MECHANISMS ▪ Establish and implement a Code of Conduct/Ethics ▪ Strategic control systems - Formal target-setting, measurement, and feedback systems ▪ Establish standards and targets against which performance can be measured ▪ Create systems for measuring and monitoring performance on a regular basis ▪ Compare actual performance against the established targets ▪ Evaluate results and take corrective action if necessary 23 INTERNAL GOVERNANCE MECHANISMS ▪ Employee incentives - Motivate employees to achieve firm goals ▪ Goals may be financial, operational, or others such as ethical behavior, the lack of which could cost the firm in fines from regulators ▪ Examples of internal governance mechanisms ▪ Performance appraisal and promotion based on specific firm objectives or operational goals ▪ Reward ethical behavior and tie to incentive compensation schemes 24 MEASURING CORPORATE SOCIAL PERFORMANCE Social entrepreneurship is a concept in which a business is created with a goal of bettering both business and society. Kinder, Lydenberg and Domini & Co. (KLD), a Boston-based company rates companies on a number of stakeholder-related issues with the goal of measuring corporate social performance (CSP), the degree to which a company’s actions honor ethical values that respect individuals, communities, and the natural environment. KLD conducts ongoing research on social, governance, and environmental performance metrics of publicly traded companies and reports such statistics to institutional investors. SMALL BUSINESS SPOTLIGHT: SOUTHERNECO: SAVING THE PLANET, ONE JAR OF COOKING OIL AT A TIME As an undergraduate student at Auburn University, Clay McInnis developed a vision of creating a biodiesel company in his hometown of Montgomery, Alabama to supply fuel for his family’s construction business. He created SouthernEco LLC in 2009, operating under a philosophy of “People, Planet, Profits, Progress,” SouthernEco now sells biodiesel machines to others in addition to creating biodiesel for multiple construction companies. Because of the success of his environmentally friendly start-up, Clay has been featured on CNN, and he was named one of BusinessWeek’s top twenty-five young entrepreneurs for 2011. Source: Photo courtesy of SouthernEco. ...
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Tutor Answer

School: Boston College

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Strategic Management and Corporate Governance
Institutional Affiliation




According to the article which has been provided, the key stakeholders of Facebook are
Netflix, Amazon and Spotify including other organizations. Facebook decided to give these
companies the ability to read messages of Facebook users. Apart from reading the messages,
these companies were also able to write and to delete the Facebook user's messages. These
companies which got the ability to access private message of the Facebook users are technology
companies which are using the technology to serve its clients. For instance, Netflix business is to
offer online streaming of a library of television programs and films. Initially, the company was
dealing with the sales of DVDs but with time it had to change how it operates because of the
technology hence changing its services to online streaming of the films and television programs.
The other company which got permission from Facebook to access, to write and to delete
messages of Facebook users is Amazon. Amazon is an online enterprise which sells its products
online. The products sold are electronics, books, magazines DVDs among others. Spotify is
another company also which could access the secret information of the Facebook uses. Spotify is
a digital music service which gives the clients an opportunity to access millions of songs online.
This is an indication that Facebook gave permission to the enterprise which is dealing with their
clients online.
The way in which Facebook prioritized its key stakeholders prior to the scandal is that it
allowed them to access the secret information of Facebook users. Facebook was supposed to
keep the details of the users s confidential but it went against that and allowed the stakeholders to
not only have access to the private information but also to write and delete the messages of the
users. This act in which Face...

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