The Impact of Corporate Governance Failures: Facebook Scandal Report

This report delves into the Facebook scandal, examining the failures in corporate governance that led to the Cambridge Analytica data breach and its repercussions. The report begins with an introduction to corporate governance and its importance, followed by a review of the Facebook scandal and its context. It explores the issues faced by Facebook due to inappropriate corporate governance strategies, including the erosion of user trust and the financial penalties incurred. The research objectives and questions are clearly stated, followed by an in-depth literature review covering the concept of corporate governance, issues in organizations, and the specific case of Facebook. The methodology includes a discussion of both primary and secondary data, providing insights into the scandal's impact. The report concludes with recommendations and an action plan aimed at restoring Facebook's goodwill and improving its corporate governance practices. This report is a valuable resource for students studying business development and corporate governance.

Report
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CONTENTS
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
Background information..............................................................................................................3
Review of the Problem................................................................................................................3
Aim:.............................................................................................................................................4
Research Objective:.....................................................................................................................4
Research Questions......................................................................................................................4
LITERATURE REVIEW................................................................................................................4
Literature................................................................................................................................5
Concept of corporate governance and its importance..................................................................5
Corporate governance issues in context of organisations............................................................5
Review.....................................................................................................................................6
Corporate governance issue of Facebook....................................................................................6
Several issues faced by company after Facebook Scandal..........................................................7
The relation between affecting goodwill of company and adoption of inappropriate corporate
governance strategy by Facebook................................................................................................7
RESEARCH METHODOLOGY....................................................................................................8
DATA ANALYSIS AND DISCUSSION.....................................................................................11
Primary data discussion.............................................................................................................11
Secondary data discussion.........................................................................................................14
RECOMMENDATION AND ACTION PLAN............................................................................15
Recommendations......................................................................................................................15
Action Plan................................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19
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INTRODUCTION
The corporate governance is all about the set of mechanism or policies that are being used in
order to manage the affairs of corporate. The effective management of corporate help in ensuring
that activities within eth organisation get executed in ethical manner while complying with all
the industrial standards and norms (Cohen, Holder-Webb and Khalil, 2017). The corporate
governance supports an organisation in performing well within the marketplace and also support
in forming up a positive brand image in front of its stakeholders that further support it in
achieving the competitive edge and sustainability at marketplace.
Background information
Corporate governance plays a significant role within the execution of work as well as final
performance of an organization by controlling as well as directing its practices toward
accomplishment of organizational goals while complying with all the practices in ethical manner.
The in appropriate implementation or lack of corporate governance results into a failure of an
organization in meeting up its promises to its stakeholders (Katmon and Al Farooque, 2017).
This can also be seen from the Facebook scandal that was a big case of failure of corporate
governance. Hence for performing this study, Facebook is being focuses for performing
investigation. It is a American online social media and social networking service company which
is based on California and provide a platform for interaction and communication to people
virtually throughout the world.
Review of the Problem
For performing an investigation over the corporate governance this study is performed
over the Facebook scandal, where the company has an allegation for publicly sharing the private
and confidential information of its users. This happen when the Facebook make up an alliance
with a political consulting firm named as Cambridge Analytica. After this alliance this company
has harvested the data of 87 million people from their Facebook profile which it then exposed to
the researcher of the Cambridge Analytica that actual get all the emails from the Democratic
National Committee server (Hitch, Ravichandran and Mishra, 2014). This bring up huge issues
for Facebook as it have to pay a higher amount as a fine for wrong doing without the permission
of the person whose confidential information get leaked. This was the big case pf corporate
governance and due to which it is chosen for this project so a deep understanding can be
developed.
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Aim:
To investigate about the influence of inappropriate corporate governance strategies over
goodwill of the company. A study of Facebook.
Research Objective:
 To study about the concept of Corporate governance and its importance within an
organisation.
 To identify the issues faced by Facebook due to inappropriate Corporate governance
strategy
 To ascertain the relation between affecting goodwill of company and adoption of
inappropriate corporate governance strategy by Facebook
 To identify the strategies through which the Goodwill of Facebook can be improvise after
scandal.
Research Questions
 What is the concept of Corporate governance and its importance within an organisation?
 What are several issues faced by Facebook due to inappropriate Corporate governance
strategy?
 What is the relation between affecting goodwill of company and adoption of
inappropriate corporate governance strategy by Facebook?
 What are the strategies through which the Goodwill of Facebook can be improvise after
scandal?
LITERATURE REVIEW
Literature review is that section of an investigation which focuses toward critically
reviewing the information which is already available so that the basic understanding can be
develop for the nature of study. This provide a guidance to the investigation for proceeding
further to perform investigation. For this investigation the literature review is divided into two
parts i.e. literature where basic information about concept would be presented and Review where
the actual issue of corporate governance will be discussed which is of Facebook Scandal.
5

Literature
Concept of corporate governance and its importance
Rouse. M. 2020., corporate governance refers to the integration of several rules, laws or
processes through which businesses are mainly controlled, regulated and operated. It mainly
consists of both external as well as internal factors that have a direct influence over the interest
of stakeholders which mainly includes suppliers, government, customers, management and
shareholders. It is mainly about the way the corporation is being governed by the management. It
main focuses remain to execute a business as per the expectation of the stakeholders. This is
mainly handling by the board of directors and concerned committee which actually focuses
toward balancing the individual; societal, economical and social goals so that organisation can
survive in marketplace.
The Corporate governance holds up huge importance within an organisation as it ensures
effective functioning of an organisation. According to Mburugu. C., 2015, the effective
management of corporate governance holds up a huge significance for an organisation that can
be understood from below given information,
 Accountability: - The corporate governance helps in defining the roles as well as
responsibilities within an organisation. This in turn holds people remain accountable for
the actions they have performed. This in turn help in ensuring smooth and correct flow
of business operations. This accountability allows companies to make an appropriate
decision regarding who must be appreciated or rewarded for their good work and who
must be terminated.
 Lowering risk: - The effective management of corporate governance help in reducing
the incidents of criminal liability, scandal and fraud. This is so because it involves
accountability which help in easily determining the perpetrators quickly and deal with
them.
 Public acceptance: -The corporate governance involves a principle of transparency and
when the stakeholders as well as general public get access to company’s information
then it support in building up trust.
Corporate governance issues in context of organisations
As per the perception of Muir. J., 2016, corporate governance is the term which is used for
maintain a balance between the people involve within the corporate structure who hold up
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interest in the way corporate operates its function. But ineffective implementation of corporate
governance adds up several issues in front of organisations such as, ethical violence where such
actions are taken that are consider to be unethical or create issues for the stakeholder of
company. Other than this lack of transparency is also an issue as it can expose the company to
heavy fines from the regulatory agencies. Other than this some another issue found in absence of
corporate governance is oversight issue, conflict of interest among stakeholders and
accountability issues. These issues have a huge loss to a company by exposing it to the
regulatory compliances and also affect the goodwill as well as customer perception toward a
particular brand. This sometimes results into failure of a company in marketplace.
Some of the biggest corporate governance issues found in UK that are being presented by
Smith. W. H., 2018, are Volkswagen emission scandal which was happened in year 2015when
the US environmental Protection Agency announced that VW had cheated within eth emission
test. The company found in default as with the help of a software or a cheat devise attached in
car engine let it pass the emission test by reducing the nitrogen emission while testing. From this
it has been found that scandal affected around 11 million cars.
Other than this, another corporate governance case found is the Apple Scandal in year 2017.
This issue is mainly found when the Reddit user reported that Apple is forcing uses to update
software by slowing down the devices, but this update is reducing the performance of iPhone.
This update affect t the devices with old batteries and then these issues get automatically covered
when users add new batteries. This affected the image of company badly and to cover this it
started offering discount over batteries to enhance their goodwill.
Review
Corporate governance issue of Facebook
According to Sanders James, 2019, The Facebook Scandal revolves around the stolen of
personal and confidential information of the Facebook user which is of up to 87 million people.
This data is stolen by a well-known political consultancy and strategic communication firm
which is named as Cambridge Analytica. The Facebook forms up the partnership with this firm
and with this business alliance the Cambridge Analytica has get themselves as well as other
company an access to the personal information of the Facebook user with confluence of several
factors that mainly includes inadequate safeguard against companies that are involve in data
harvesting practices, lack of oversight on the developers of the Facebook etc, these all get
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happen due to lack of corporate governance performed by Facebook. This brings up a huge
influence over the functioning as well as goodwill of the company.
Several issues faced by company after Facebook Scandal
As per the view point of Stewart. E., 2018, everything was moving well in the starting of
year 2018 and as per the demand of users, Facebook has announced that it will present more
friends and family pictures of user over news feed then the business bulletins. But then in march,
Facebook suddenly announced that its is suspending the Strategic communication and data
analytic firm, Cambridge Analytica and from investigation it has been found that this firm
harvested the data of Facebook user of around 87 million. This make the company get into
trouble by affecting it hugely with this event. As it has been found that the founder of Facebook
was being called to represent in front of European parliament where several ranges of questions
are being asked by the Mark Zuckerberg about this scandal which in turn affected the goodwill
of company badly.
Other than this the Facebook has bought a lawsuit within US which is done by a app
developer who alleged over the data policies which make it a biggest blender for the company as
it affected the trust and confidence of its user within the company. This in turn affected its
market position and other social media websites get advantage of this. Despite of all this the data
breach case of Facebook results into a fine of $1.6 billion fine out of the Europe. But this doesn’t
end here, in August the federal government has filed a charge against Facebook by claiming that
it had violated the fair Housing Act by giving permission to ads for discriminating against certain
groups and in September the American Civil Liberties Union alleged that Facebook is allowing
the employers to target job ads only for men. These all are the major issues that Facebook has
experienced after scandal which affected its brand image and goodwill which it earned from
years to diminished which in turn created negative perception among people.
The relation between affecting goodwill of company and adoption of inappropriate corporate
governance strategy by Facebook
According to information presented by Spangler. T., 2018, the Facebook wields up more
power then any other union or organisation in world, but still the all the decision regarding
running up a business remains in the hand of a single person i.e. the CEO Mark Zuckerberg.
Hence it was consider that the main cause behind this big scandal was due to absence of effective
corporate structure within Facebook as main factors that lead this scandal happens is lack of over
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sightedness as well as lack of transparency in its operations. These both factors take up the
Facebook in this situation and these factors took place due to absence of Corporate governance
structure. From further investigation it has been identified that Facebook holds up around 60% of
voting power and take up its own decision in term of things that are right or wrong for the
company. In extension to this it has been stated by the CEO of company that the capital structure
it follows is in the best interest of stockholders and this is consider as the corporate governance
structure by them. But as per the other Tech experts Facebook must focuses toward forming up a
committee that handle corporate governance so that such issues can be avoided. It is so because
this scandal happens due to lack of certain factors of corporate governance such as lack of
transparency in operations as well as over sightedness which in turn make the situation worsen
and as a result of which Facebook has claimed with several penalties and compensations along
with lawsuits that all affected the goodwill of the company.
RESEARCH METHODOLOGY
Research methodology is defined as that section of an investigation which represent
about the set of tools, methods or approaches that are used for performing a particular
investigation effectively. It acts as a guide for the investigator which shows them how to gather,
arrange, interpret and analyse the collected data in order to extract out meaningful outcome. The
current study is based on both primary as well as secondary investigation and methods used for
performing this investigation are mentioned below:
Secondary Research: -
This study is mainly performed over the information which is already available about a
particular topic. In this type of the data collection, the information about a particular topic is
mainly get collected with the relevant information by reading out the reviews as well as opinion
of some writers or professionals (Walliman, 2017). Hence, with eth help of secondary study the
information is provided as per the prospects of the other researchers who published their
investigated material over several different sources. This mainly includes books, journals,
articles, newspapers, websites and many more. This investigation is mainly conducted in order to
develop an understanding about the current area as well as the nature of the study.
 Research approach: - For performing this secondary investigation the qualitative
research approach has been taken into consideration. This is so because it supports in
performing the secondary study in detailed manner or provide in-depth understanding
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which make the study more meaningful (Wiek and Lang, 2016). Other than this, for
analysing the information gathered through qualitative study the inductive approach will
be used that support in evaluating the information and work toward creating a new theory
based on findings of existing one which provide a base to extend the study further using
primary investigation.
 Research strategy: - For performing the secondary investigation more effectively the
thematic analysis strategy is used where the gathered data in divided which followed with
the themes. The themes help in representing what actually is going to be discussed under
each theme. This support a reader in getting an idea about what next is to be presented so
that it remains more explanatory to them.
Primary Research: -
Under this type of investigation, the researcher is mainly gathered the data by themselves
directly from the sample population in order to collect fresh information. This type of
investigation mainly results into totally new information which is not yet been gathered by any
other person before. This information is mainly collected through survey, questionnaire,
interview, focused group etc. The data gathered through primary investigation is consider to be
more reliable and valid as it is collected directly without any kind of filtration.
 Data collection method: - For performing the primary investigation, there are mainly
two methods for data gathering that can be taken into consideration such as qualitative
and quantitative (Tuohy and et.al., 2013). Among these two methods quantitative method
of data collection will be used as it help in presenting the information in more concise
and numerical form so that accurate information can be presented and more specific
outcome can be extract.
 Data collection tool: - There are number of tools that are used for gathering the primary
information such as interview, questionnaire, focused group, survey, case study etc. But
in order to gather information for this investigation questionnaire will be used as it is a
medium which support in collecting larger amount of information in less possible time
period. The questionnaire is presented below:
Q1 Do you have an understanding regarding the importance of
Corporate governance within an organisation?
Frequency
a) Yes 45
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b) No 5
Q2 What role does corporate governance plays within the
functioning of an organisation?
Frequency
a) Maintain work ethics 15
b) Align Business goals 15
c) Transparency and accountability 20
Q3 Do you think that the main cause behind the Facebook scandal
is inappropriate maintenance of corporate governance?
Frequency
a) Agree 40
b) Disagree 10
Q4 As per your perception, what consequences Facebook had faced
after the disclosure of scandal?
Frequency
a) Goodwill affected badly 35
b) Market share get affected 10
c) Pay a huge fine 5
Q5 According to you What are several strategies that Facebook can
adopt to get recover its goodwill in market place?
Frequency
a) Improve security measures on app 25
b) Tighten app access data 15
c) Involve in more CSR practices 10
Q6 In what manner the Facebook can implement effective
corporate governance practices within its organisation for getting
the trust and confidence of its stakeholder back?
Frequency
a) Form Committee for corporate governance 20
b) Regular evaluation of operations 15
c) Disclosure of information 15
 Administration: - The data to be gathered will be administrated through email as it is
considered to be most convenient sources for providing appropriate information to the
respondents along with questionnaire form (Taherdoost, 2016). This is more time saving
and at the same time also help in keeping the information safe and secrete.
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 Sampling technique: - It refers to the process of selecting respondents from the
population which is a witness of particular event or have information about it in order to
collect primary data about a particular study area. There are two methods of sampling
such as probabilistic and non-probabilistic (Silverman, 2016). Among them probabilistic
sampling method would be taken into consideration as it provides equal chance of each
individual within population for being selected and respondents will be selected on
random basis. Hence, for this project random sampling method under probabilistic
approach will be consider where respondents would be 50 employees of Facebook.
 Ethical issues: - While gathering primary information there are number of ethical issues
to which a researcher confront (Scotland, 2012). For avoiding such kind of ethical issues
the investigation followed sone ethical principles while performing this investigation
such as informed consent which allow the respondents to participate in investigation
voluntarily when the aim behind conducting study will be disclosed to the respondents.
Another ethical principle to be followed is confidentiality where the confidential
information of respondents would be kept secret.
DATA ANALYSIS AND DISCUSSION
Primary data discussion
Theme 1: The importance of Corporate governance within an organisation
Q1 Do you have an understanding regarding the importance of
Corporate governance within an organisation?
Frequency
a) Yes 45
b) No 5
Interpretation: - From the data mentioned above it has been identified that around 45
people said yes that they are aware about the importance that corporate governance holds within
an organisation as it is moral duty of each company. This is so because it helps in ensuring that
each and every practice get performed while considering ethical or legal practices and this is
ensured when proper screening of work performed by employees. Hence, majority of people
have understanding about the importance of corporate governance. On the other hand, 5 people
don’t have any idea regarding importance of corporate governance.
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Theme 2: Role that corporate governance plays within the functioning of an organisation
Q2 What role does corporate governance plays within the
functioning of an organisation?
Frequency
a) Maintain work ethics 15
b) Align Business goals 15
c) Transparency and accountability 20
Interpretation: - From the data gathered above it has been determined that 15 people
believe that maintaining work ethics is the main role of corporate governance, while 15 said that
its role is to align business goal into work, while 20 said that its role is to maintain transparency
and accountability. By analysing this information, it has been identified that majority of people
respond that transparency and accountability is the major role as it focuses toward ensuring that
malpractices can be avoided in organisation by presenting all the financial details in front of the
stakeholder to represent true image of the company.
Theme 3: The main cause behind the Facebook scandal is inappropriate maintenance of
corporate governance
Q3 Do you think that the main cause behind the Facebook scandal
is inappropriate maintenance of corporate governance?
Frequency
a) Agree 40
b) Disagree 10
Interpretation: - According to the 40 employees of Facebook the main reason behind
the scandal of Cambridge Analytica is Inappropriate management of corporate governance. This
is so because if the corporate practices govern effectively then such misconduct would not
remain hidden from the other authorities of organisation. On the other side the 10 respondent are
disagree that the corporate governance was not a reason for Facebook scandal.
Theme 4: Consequences Facebook had faced after the disclosure of scandal
Q4 As per your perception, what consequences Facebook had faced
after the disclosure of scandal?
Frequency
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a) Goodwill affected badly 35
b) Market share get affected 10
c) Pay a huge fine 5
Interpretation: - From the information presented above it has been determined that
around 35 respondents said that after the Facebook scandal the main issues that company has to
faced was that its goodwill get affected badly. Despite of this other 10 respondents said that
market share of the Facebook gets affected as the people lost their trust within its services. Other
than these 5 employees said that Facebook has to pay off a huge fine over this scandal which was
the major consequence. After evaluating all the performance, it has been determined that
majority of responses are toward goodwill impact, as this scandal has spread a huge amount of
negative publicity in marketplace. As the user’s data get disclosed which is a breach of trust that
affected the perception of users toward Facebook in a negative manner. Hence its brand image or
goodwill get affected hugely.
Theme 5: Several strategies that Facebook can adopt to get recover its goodwill in market
place
Q5 According to you What are several strategies that Facebook can
adopt to get recover its goodwill in market place?
Frequency
a) Improve security measures on app 25
b) Tighten app access data 15
c) Involve in more CSR practices 10
Interpretation: - There are number of strategies that can be adopted by Facebook in
order to recover its goodwill within marketplace. From this it has been determined that around 25
people said that by improving security measures over its application, the goodwill can be
recovered as it help in building up trust again. On other side 15 people said that tighten the app
access data will support in improving goodwill and 10 respondents said that by involving into the
CSR practices Facebook would be able to recover its goodwill. Hence it has been identified that
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majority of people are in favour of improving security, as after scandal user are getting more
anxious toward their secure access.
Theme 6: The Facebook can implement effective corporate governance practices within its
organisation for getting the trust and confidence of its stakeholder back
Q6 In what manner the Facebook can implement effective
corporate governance practices within its organisation for getting
the trust and confidence of its stakeholder back?
Frequency
a) Form Committee for corporate governance 20
b) Regular evaluation of operations 15
c) Disclosure of information 15
Interpretation: - The corporate governance is considered to be more appropriate practices
that it can adopt in getting the trust and confident of stakeholder back. Over these 20 respondents
said that for effective implementation of the corporate governance, Facebook must focus toward
forming up a committee, while 15 said that it must regularly evaluate the operations and 15 said
that it must ensure disclosure of information. From this majority of people believes that forming
up a committee specially for Corporate governance would be beneficial as it ensures that each
work get perform ethical and can also have a check over the actions performed within the
organisation.
Secondary data discussion
From the secondary investigation performed above it has been identified that corporate
governance is basically consider as the structure of an organisation which is form up of people,
roles, responsibilities and policies so that each operations can be performed within the sight of
management in effective manner. This support in ensuring that each individual have
understanding about their role within the organisation and manner in which it must be performed
by considering do’s and don’ts. This in turn brings up transparency in work, make each
individual hold accountability for their work, oversight of management can be maintained over
the work performed within the organisation so that any kind of mis conduct or wrong doing can
be easily capture by the management and at the same time an individual or cause behind that can
be determined easily.
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The inappropriate management of Corporate governance brings up several issues to the
company and affect its overall operations as well as performance. This issue is faced by
Facebook in a Scandal that affected its goodwill badly due to its wrong conduct. From
investigation it has been identified that a Facebook form up a partnership with Cambridge
Analytica a strategic communication firm that work for political affairs. This alliance proves to
be worse for Facebook as this firm harvest the personal information of around 87 million
Facebook users which affected the Facebook and its functioning in marketplace badly. After this
event company has to went through several issues such as lawsuit was imposed by the federal
government, through fair Housing Act and American civil Liberties Union also alleged company
due to its discrimination in job promotion. Other than this company is forced to give up the fine
of around $1.6 billion to Europe as being ordered by European Parliament.
RECOMMENDATION AND ACTION PLAN
Recommendations
From the above performed investigation it has been determined that after Facebook
Scandal, this event bring up several number of issues for Facebook. So, in order to deal with
these issues, following are certain recommendation that it can consider for recovering from this
situation,
 It must focus toward reviewing all the applications that are being accessing larger amount
of data over its platform or when any kind of suspicious activity found. This help in
getting idea about any kind of intruding activity if kept hidden from management sight.
 Facebook must also focuses toward altering the people who have their information
getting misused and must maintain regular interaction with them so that appropriate
actions can be taken on timely manner.
 It must add a feature to increase security by turning off the access of user data by app if
the user in inactive from last three months.
 The Facebook must also focuses toward regularly tracking the security measure by
performing evaluation of security threads in term of its strength and working while
regularly upgrading it so that security assurance can be provided to users.
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Action Plan
The action plan consists of several set of activities that are required to follow for
performing an investigation. For ensuring effective implementation of corporate governance as
per the organisational practices, the top management of Facebook must consider below given
action plan,
Activities Procedures
Problem identification For performing the improvement in business
operations, Facebook is firstly required to
determine the areas where issues involve that
causes this scandal by hiding it from
management and areas where it is required to
improve to avoid such practices in near future.
Development of aims and objectives After deciding the area of improvement, the
next is to formulate aims and objectives related
with the improvement so that a direction can be
provided regarding the ways to be adopted for
executing the action plan.
Literature review Once the aim or objective get formulated the
next is to perform the literature review where
already available information investigated by
several people over Facebook Scandal will be
critically review. This help in determining the
pattern of issues involve within event so that
with the help of available information can be
used to form strategies.
Research Methodologies For further executing the work in regard of
determining solution to the issues faced by
Facebook after scandal, it is required to select
the methods or tools used to perform
17

investigation further. These selected methods
or tools support in providing a guidance
regarding the further actions to be taken and in
what manner to get desired outcome.
Collection of suitable data For collecting the appropriate data regarding
the issues, the primary information will be
gathered based on secondary information
gathered above. For this questionnaire tool will
be used which help in collecting the view point
of larger number of people at a time. After
gathering data, it will be analysed effectively in
order to convert it into meaningful data so that
findings can be represented in form of solution
to issues Facebook currently is facing.
Conclusion and recommendation Once all the information get analysed and
interpreted effectively, the next step is to
represent the conclusion on the basis of
finding. As per this, further recommendations
are provided so that issues mentioned in aims
and objectives can be resolved effectively.
Submission of final report This is the final stage within an action plan
where the formulated strategies will be
implemented for resolving issues.
CONCLUSION
From the above-mentioned information, it has been determined that corporate governance
plays a significant role within an organisational success at marketplace. It helps in ensuring that
the work performed within an organisation must be executed with the consideration of ethics and
laws. Other than this it also supports in forming up effective strategies for aligning the work
18

performed by employees to the goals of an organisation and also support in brining transparency
as well as accountability within the organisation so that operations get performed more
appropriately. But in order to implement corporate governance effectively an organisation must
focuses toward forming up a committee specially for this role and for ensuring its effective
performance regulate performance evaluation of actions performed in organisation can be done.
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