The Deeper Meaning in the Facebook Scandal

This week I’ve kept one semi-interested eye on Frances Haugen, more commonly known as the Facebook whistleblower. Her bombshells launched — the 60 Minutes interview, the testimony before Congress, the leaked documents — were all devastating to Facebook, but compliance professionals should look deeper. Haugen’s arrival on the scene portends something deeper, too. 

By now you probably already know Haugen 101. She is a software industry executive by profession, hired by Facebook in 2019 as part of the company’s Civic Integrity team to help combat election interference. Except, Haugen grew disillusioned with the business practices she saw at Facebook, and eventually leaked thousands of documents to the Wall Street Journal. Those documents turned into the Facebook Files, an exposé that shows how Facebook has hidden evidence that its empire contributes to all sorts of social problems, from political extremism to body-image anxiety among teen girls. 

Then came Haugen’s turn on 60 Minutes last weekend, where she revealed her identity to the world and roasted Facebook in a 14-minute interview. Two days later Haugen testified before Congress, delivering a cogent and devastating analysis to the Senate Commerce Committee as it mulls legislation to curb Facebook’s power in some way (probably in many ways).

What caught my ethics and compliance ear, however, was an almost throw-away statement Haugen and her attorneys made over the weekend: that she has filed a whistleblower complaint with the U.S. Securities and Exchange Commission. 

Well, why?  

After all, the one sin that Facebook hasn’t been accused of is filing sloppy financial statements. So why would an investor protection agency such as the SEC be interested in Facebook’s other business practices? 

That’s a rhetorical question, of course. Haugen’s whistleblower complaints to the SEC— eight related complaints that total dozens of pages — all say that Facebook executives made misleading statements about their business practices to the public, which gave investors a false sense of confidence in the business. Hence the SEC’s interest.

What That Says About What Investors Value

Haugen’s accusations against the SEC are comprehensive: that the company has lied about promises to enforce its content rules equally for all users; that CEO Mark Zuckerberg misled Congress in 2018 when he said the company would focus on “meaningful social engagement;” that the company misled the public about its role in perpetuating election disinformation and fomenting extremism ahead of the Jan. 6 insurrection. And so forth and so on.

The complaints did not, however, say anything like, “we were fabricating deals to inflate revenue,” or “executives used false spreadsheets and sham vendors to bribe their way to business contracts.” You’ll find nothing about poor internal accounting controls or sketchy business deals. 

At their core, Haugen’s complaints are all about failures of Facebook’s ethical culture — how the company squirmed away from doing the right thing on political extremism, teen body image anxiety, hate speech, and more. Her complaints are about how Facebook executives tried to say the right things in public, and then let those ethical priorities wither in private. 

Well, if the logic here is that lying about your ethical culture is misleading to investors to the point that it violates U.S. securities law, that implicitly means that a strong ethical culture is something investors value.

Or, more simply, Haugen is telling the world, “See how gross our internal culture and operations really are? They’ve been lying to you all along!” Which means she believes that investors would recoil when they see Facebook’s true face. Which investors would only do if they believe unethical behavior is something to be avoided. 

The whole premise of Haugen’s complaint to the SEC is that a strong ethical culture is something investors inherently value. 

I think she’s right.

Looking at the Bigger Picture

We should also remember that Facebook isn’t the only high-profile business under SEC scrutiny for defective leadership and ethical culture. Activision-Bizzard has been under fire for allegations that its senior leaders allowed a corporate culture rife with sexual harassment; and recently confirmed that the company is under investigation by the Securities and Exchange Commission for making misleading statements to investors. 

About what? Activision’s poor handling of sexual harassment complaints. 

The misleading statements Activision and Facebook supposedly made were about how the businesses conducted themselves — their ethical priorities and their corporate culture, rather than their income statements. That’s the point to ponder for corporate compliance and ethics. Society is placing more importance on those intangible things, which means corporate boards need to pay more attention to how senior executives handle those issues. 

As business keeps marching forward into a world where human capital matters more than physical assets, a company’s ability to uphold workplace respect and to align its operations with the ethical values of employees, customers, and consumers alike — that’s the company that will prevail and prosper. 

The rest, no matter how profitable their bottom line might be, will endure endless public opprobrium and leave their leaders privately wondering whether it’s all really worth it.