Failure of CSR Approach of Facebook

This report evaluates the example of Facebook to understand its CSR framework and the failure of its approach. Gaps in the current CSR approach of Facebook are analyzed, and recommendations are given to improve its CSR framework.

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Organization and Society
Facebook

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Table of Contents
1. Introduction........................................................................................................................2
2. Facebook Inc.......................................................................................................................3
1.1 Facebook CSR Overview...................................................................................................3
3. Identification of Ethical Dilemmas......................................................................................4
4. Failure of CSR Approach of Facebook.................................................................................5
5. Application of CSR Theories................................................................................................6
6. CSR Recommendations.......................................................................................................8
7. Limitations of the Analysis and Scope for Future Research.............................................10
8. Conclusion.........................................................................................................................12
9. References........................................................................................................................13

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1. Introduction
In today’s competitive business world, the significance of effective corporate social
responsibility (CSR) approach has grown as the number of companies that engage in
unethical trading practice increases. Aguilera et al. (2007) provided that the world is
triggering a positive social change as the number of companies that engage in CSR initiatives
increases; these initiatives include reduction in environmental impacts, changing labour
relationships and improving the value chain. Gond, Kang and Moon (2011) defined it as a
self-regulation framework which is used by companies to manage their impact by changing
their processes to produce an overall positive impact on society. However, Herzig and Kühn
(2017) provided various challenges and problems relating to corporate responsibility
reporting because it is a self-regulatory framework which requires the board of companies
to reconsider their CSR approach. The objective of this report is to evaluate the example of
Facebook in order to evaluate its CSR framework. A wide range of literatures will be
analysed in this report to understand the concept of CSR and how it benefits companies
such as Facebook in ensuring that they ethically conduct their business operations. The
justification for selection of Facebook is that its mission is to create a global community
while protecting the privacy of its users; however, the company was recently involved in the
Cambridge Analytica Scandal in which the failure of CSR approach of the company leads to
violation of privacy of over 87 million people. Based on this evaluation, gaps in the current
CSR approach of Facebook will be analysed, and recommendations will be given to its board
in order to improve its CSR framework.

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2. Facebook Inc.
Facebook Inc. was founded in 2004 as an American online social media and social
networking company and its headquarters is situated in Menlo Park, California (FB, 2019).
Since its launch, the company comes a long way with attracting over 2.32 billion monthly
active users in the last quarter of 2018 (Statista, 2019). People use services of Facebook to
share their private life with others and interact with individuals around the world. This
structure has resulted in generating a large amount of data on Facebook as it processes over
2.5 billion pieces of content which contributes to around 500+ terabytes of data on a daily
basis (Constine, 2012). It shows that Facebook has a significant impact in people’s lives and
they use it to share their private data which imposes an obligation on the company to take
initiatives to ensure that the private data of its users are protected. In order to discharge its
obligation, the company has adopted a CSR model which provides a guideline for its
management to ensure that they prioritise data privacy and interest of their users before
profit maximisation (Fuchs, 2012).
1.1 Facebook CSR Overview
A study conducted by Maignan and Ralston (2002) found that the number of companies,
especially in the UK and the US that engage in CSR practices through their websites has
increased and companies are more likely to interact with their stakeholders through online
mediums. Similarly, the CSR structure of Facebook is focused on implementing initiatives to
protect and achieve the interest of its stakeholders. The company has also implemented a
code of conduct which guides the actions of its management to ensure that they conduct
their operations in an ethical manner. Section 2 of this code provides provisions regarding
conflict of interest of parties which provides that Facebook personnel must use their
judgement to act in best interest of Facebook while performing their duties to avoid conflict
of interest (FB, 2018). Section 7 of this code provides that the user data is confidential which
must be protected and it should be kept in strict confidence (FB, 2018). The company also
comply with various laws such as the US Foreign Corrupt Practices Act (FCPA) and US
Antitrust laws to ensure that it avoid legal consequences (FB, 2018).

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Various CSR initiatives have also started by the company towards protection of the interest
of its stakeholders. The company supports local communities; for example, it collaborated
with Menlo Park Rotary Club to build 25 planting beds which were free to use any everyone
(Menlo Park Rotary, 2015). It focuses on educating and empowering employees based on
which it has an employee satisfaction rating of 93 percent. The management of the
company is handled by Mark Zuckerberg who is the CEO, Chairman and Founder of the
company. Sheryl Sandberg is COO, Dave Wehner is CFO, Chris Cox is CPO, and Mike
Schroepfer is the CTO of the company (Bloomberg, 2019). The board of directors of the
company comprises of nine members from which six are individual directors (Bloomberg,
2019). These individuals are responsible for taking business decisions for Facebook and
approving its actions.
3. Identification of Ethical Dilemmas
Since the CSR structure is a self-regulatory framework, it becomes easier for the
management to bypass its policies in order to engage in unethical business practices.
Knudsen (2017) emphasised on the importance of the government as a key regulator of CSR
in order to put this system beyond voluntarism to ensure that the accountability on
companies can be increased. The recent Cambridge Analytica scandal in which Facebook
was involved is a good example that supports the arguments made by Knudsen (2017). In
2010, Facebook launched a platform for its developers called Open Graph in which
developers can get access to Facebook users who have not expressly given their consent to
them if one of their friends gives his/her permission to the developer (Isaak and Hanna,
2018). Based on this platform, an application was launched in 2013 titled
‘thisisyourdigitallife’ in which users can give answers in order to create their psychological
profile. In 2014, the Open Graph platform was discontinued by Facebook. A report was
made in 2015 that a company called Cambridge Analytica used the private data of Facebook
users in order to support Ted Cruz’s campaign (Meredith, 2018). Later, it was revealed in
2017 that Facebook issued as a platform by the company in order to find potential voters to
support the Presidential Campaign of Donald Trump who ended up winning the 2016 US
Presidential Election (Meredith, 2018).

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In this scandal, it was found that the private data of over 87 million Facebook users were
breached; this attack was separate from other cyber-attacks because it was a resulted of
Facebook’s own fault since the company launched Open Graph platform that allowed
developers to collect private data users without their permission (Tarran, 2018). This
incident is a result of the violation of the guidelines established by Facebook in its own code
of conduct in which section 7 provides that protection of data of users is a priority of the
company. The board of the company failed to comply with its CSR approach since it is a self-
regulatory and their actions were not monitored by third parties. After this incident,
Zuckerberg admitted that he, as the CEO of Facebook, has made mistakes and the
consequences of these mistakes are a violation of data privacy of over 87 million users
(Wong, 2018). He promised that Facebook would make substantial changes in its privacy
policy to ensure that the private data of its users is prioritised (Wong, 2018). However, a few
months later, Facebook faced another cyber-attack in which the login details of more than
50 million users were breached by cyber criminals (Statt, 2018). It shows that the failure of
the management to maintain transparency through its CSR approach to make sure that the
privacy of Facebook users is protected.
4. Failure of CSR Approach of Facebook
Cambridge Analytica scandal highlighted the importance of an effective CSR structure to
ensure that the board can be hold accountability towards their actions. Matten and Moon
(2008) provided that there are two approaches of CSR which include explicit and implicit;
explicit CSR approach includes actions taken by the company to support social causes such
as donation made by Wal-Mart, Home Depot and FedEx to victims of Hurricane Katrina in
2005. Implicit CSR defines actions taken by companies within the wider formal and informal
institutions for society’s interest (Thorne et al., 2017). In the case of Facebook, the company
has failed to adopted effective implicit CSR policies since its management prioritised profit
maximisation over protection of its users’ data because they agreed to launch Open Graph
platform that gives developers access to users data without their permission (Ward, 2018).
The company did not maintain transparency in its operations when it comes to taking these
business decisions since there is no pressure on its management. The argument made by
Knudsen (2017) regarding the ineffectiveness of the CSR approach due to its voluntary

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nature is highlighted in this case. There are major gaps in the CSR model of Facebook since it
did not impose an obligation on its board.
The reporting process of the company lacks transparency which makes it easier for the
management to take decisions while violating the company’s code of conduct. Herzig and
Kühn (2017) provided the importance of corporate social reporting since it expects
companies to take responsibility for avoiding, reducing and compensating for negative
externalities while also focusing on contributing to the social welfare. In the case of
Facebook, a major gap in its CSR approach is lack of effective corporate social reporting to
impose an obligation on its board in order to maintain transparency in its operations (Cho,
Furey and Mohr, 2017). It will also promote transparency in the operations of the company
which is a major issue as it is shown that most Facebook users are not aware regarding how
the company collects their data and how it uses their data or how they can stop the
company from storing their private information (Fernandez, 2019). These factors highlight
key gaps in the current CSR approach of Facebook which makes it difficult for the company
to become a good corporate citizen that engage in the development of society and that
protects the privacy of its users.
5. Application of CSR Theories
It can be argued that based on the principles of instrumental theories that the decisions of
the management of Facebook to launch the Open Graph platform cannot be considered as
unethical because it focused on generating profits for the company. Instrumental theories
provide that companies are considered as a strategic tool for wealth creation and they are
considered as means to achieve economic results in society (Seele and Lock, 2015). As per
these theories, the actions of the management should focus on maximising shareholder
value without deception and fraud. This theory argues that the value maximisation of
shareholders should be the supreme reference for corporate decision making (Brown and
Forster, 2013). The actions taken by the management of Facebook were focused on
maximising the value of shareholders since they wanted to attract more developers to their
platform. Open Graph was a tool which enabled Facebook to attract developers throughout
the world to their platform, and this decision contributed significantly to the development
of Facebook as a global platform (Knudsen, 2017). Therefore, the objective of

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implementation of this policy was the maximisation of shareholder value which shows that
the management of Facebook complied with instrumental theories. This strategy was also
focused on achieving a competitive advantage in the industry by relying on the capabilities
of the company to achieve overall objectives.
However, Facebook failed substantially in this approach because the company misused the
private information of its users for maximisation of its share values which leads to the
breach of their private data. According to instrumental theories, companies should
prioritised maximisation of their shareholder value without engaging in any practices that
can be considered as fraudulent or misleading (Frynas and Stephens, 2015). The decision to
put the users’ data at risk in order to generate more profits for shareholders is ethically
wrong which lead that negative consequences faced by Facebook. Due to the breach of
users’ data, the share prices of Facebook plummeted on the stock market which costs
substantial loss to its shareholders (Neate, 2018). It shows that ultimately this decision did
not follow the principles of instrumental theories because the value of shareholders was not
maximised; instead, they had to face loss due to the decision of the company. The
management did not calculate the risks appropriately since the shareholders ultimately
suffered a substantial loss and the market valuation of the company dropped by $119 billion
(Neate, 2018). On the other hand, the application of other theories such as integrative
theories and ethical theories would have assisted Facebook in ensuring that it did not
engage in unethical practices. Integrative theories provide that business depends upon
society and it is important that the management should integrate social decision in their
business strategies. One of the key social demands is data privacy which is breached by the
management of Facebook when they decided to launch the Open Graph platform (Isaak and
Hanna, 2018).
Ethical theories provide that corporations owe ethical responsibilities to society which
should be considered by the management while taking business decisions (Windsor, 2013).
In this case, Facebook did not apply with ethical principles to ensure that their users did not
face data privacy issues which show that they have failed to comply with these theories. The
company could have also relied on the ‘triple bottom line’ theory in order to evaluate its
judgement on three key stakeholders which include social, environmental and financial. This
theory is used as an accounting framework by companies to evaluate their performance on

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a broader perspective in order to achieve the goal of creating greater business value
(Henriques, 2013). Through this approach, Facebook would be able to focus on the interest
of people while formulating policies to increase its overall profits. The company did not
evaluate the potential impact of its operations on people and planet, and it continued to
implement policies which were focused on increasing the profitability of the organisation.
Due to the failure of the company to comply with these CSR theories, the CSR structure of
the company failed as well due to which it faced the ethical dilemma of Cambridge Analytica
due to which the privacy of over 87 million users was breached (Wong, 2018). This example
highlights the direct connection between the implementation of CSR theories and ethical
decision making in a company which leads to ethical or unethical consequences. In order to
make sure that companies make ethical decisions, it is important that they adopt CSR
strategies to evaluate their impact on a wider range of stakeholder and take decisions while
taking their interest into consideration (Sen and Cowley, 2013).
6. CSR Recommendations
The lack of effectiveness of the CSR approach of Facebook makes it challenging for the
company to sustain its profitability as the share prices of the company dropped 20 percent
after Cambridge Analytica scandal due to which the market capitalisation of the company
plummeted around $119 billion (Neate, 2018). Therefore, the company should make
changes in its CSR approach to ensure that it complies with corporate governance principles
to conduct its business in an ethical manner. Following recommendations can assist the
management of Facebook in adding value to its CSR model to achieve its corporate goals.
 Corporate Social Reporting Standards
Herzig and Kühn (2017) highlighted the importance of effective corporate social reporting as
it resulted in increasing accountability on the management to take actions while maintaining
a balance between the interests of stakeholders of the company. Currently, the reporting
practices of Facebook are weak since its management did not disclose any actions taken by
them (such as Open Graph platform) which could potentially harm the interest company’s
stakeholders (Lee, 2016). Therefore, the company should change its operations to adopt
reporting policies in which it should make periodical announcement in public regarding the

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actions taken by its management along with justification for those actions. New policies
such as GDPR (General Data Protection Regulation) stating to implement stricter policies on
technology companies such as Facebook, Google and Apple that collects private data of its
users to make sure that they take reasonable standards for the protection of such data, and
they also acquire the consent of users before collecting and using their data (Victor, 2013).
In case companies violate these policies, then they could face legal consequences. For
example, recently Google was fined €50 million for violation of GDPR in France because the
data concept policies of the company were not accessible or transparent (Porter, 2019). In
order to avoid similar legal consequences, the management of Facebook should improve its
corporate reporting policies which will result in ‘adding value’ to the CSR approach of the
company. It should maintain transparency regarding what data does it collects, how it is
collected and for what purpose does it used by the company to its customers in order to
become a good corporate citizen (Jensen and Berg, 2012).
 Privacy Protection
One of the key duties of Facebook is to ensure that adequate standards are maintained by
the company to ensure that the private data of its users are protected; however, the
company has failed to comply with this standard since it did not learn from its mistakes.
Zuckerberg promised after the Cambridge Analytica scandal that the company will take
stricter actions towards privacy protection; still, private data of 50 million users was
compromised (Statt, 2018). Therefore, the company should put privacy protection as a key
social responsibility in its CSR approach to make sure that it takes appropriate actions to
protect the private data of its users; the company can begin by complying with GDPR which
imposes various obligations on companies regarding their social responsibilities
(Shackelford, 2018). Along with other CSR initiatives, the company should take stricter
measures to ensure that the private data of users is not collected without their expressed
consent. The company should also prohibit its developers from breaching any privacy
protection policies by regulating them through stricter policies (Bonson and Ratkai, 2013).
The company should also maintain transparency in relating to privacy protection policies to
let users decide whether they wanted to share their private data or not.
 Creating Shared Value (CSV)

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Companies can adopt CSV model in order to create a link between competitive advantage
and corporate social responsibilities which allow them to sustain their growth in the market
while fulfilling their social duties (Visser and Kymal, 2015). In the case of Facebook, the
company can achieve this goal by working along with the government to implement legal
obligations on its management. The company has clearly failed when it comes to self-
regulation of the CSR approach due to which the company should implement mandatory
policies for its board members in order to achieve CSV goals. In this model, the company will
not lose its competitive advantage because it will have access to its large user base and their
private data; however, the policies to manage and use such data will be under supervision
by the government which will assist the corporation in ensuring that it creates a positive
balance between its stakeholders (Jamali, El Dirani and Harwood, 2015). Currently,
Facebook did not work with the government to impose mandatory regulation policies;
however, its board should understand that these policies are required to achieve the
corporate goals while ensuring that the privacy of its users is not breached.
7. Limitations of the Analysis and Scope for Future Research
During this analysis, different ethical theories and perspective of experts are evaluated to
reach a conclusion and relevant recommendations. However, this research is limited to
secondary data collection as primary data is not collected for this research to understand
the perspective of management of major corporations such as Facebook that are facing
ethical dilemmas. No survey or interview is conducted with managers in corporations that
faced ethical dilemma to understand their perspective towards the implementation of
ineffective CSR approach and to understand the reason why they failed in the first place.
This research is conducted while taking ethical principles into considerations to avoid biases
regarding a particular opinion or data sources. The secondary resources are critically
evaluated on an independent basis to avoid forming a biased opinion in the research. There
is scope for further qualitative research in this area by evaluation of primary sources to
understand the challenges faced by companies while implementing a CSR approach in the
business. Further research is necessary by evaluating different CSR theories such as
instrumental, political, ethical and integrative to understand how these theories affect the
decision making and the priority given to stakeholders of a company. Many of these

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theories provide contradicting views regarding priority of a particular class of stakeholders
in a company during the decision-making process which require further research in order to
bring clarity in the application and adaptation of corporate governance policies in the
business.

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8. Conclusion
In conclusion, the CSR approach adopted by Facebook is ineffective when it comes to
ensuring that the private data of its users are protected from unauthorised access. Many
recent scandals highlighted that the board of Facebook prioritised profit maximisation
above the interest of stakeholders. Due to lack of reporting, transparency and social goals,
the board took decisions which were ineffective, and they lead to the violation of private
data of users. It shows that the sole implementation of a CSR structure does not ensure that
a company will behave in an ethical manner. Based on the gaps in the CSR structure of
Facebook, recommendations are made to its board to ensure that they take appropriate
actions towards fulfilling their corporate social responsibilities such as implementation of
effective corporate social reporting standards, privacy protection priority and CSV model to
work with the government. These recommendations will ensure that the company is able to
discharge its duties and sustain its growth in the market while levering its competitive
advantage and become a good corporate citizen.

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