Facebook Makes Profits, Shareholders Complain

Facebook Makes Profits but Shareholders Complain

The Facebook Files

Here is the New York Times on Facebook Inc. whistle-blower Frances Haugen, who disclosed a bunch of internal documents about all the bad stuff that Facebook allegedly does: In an interview with “60 Minutes” that aired Sunday, Ms. Haugen, 37, said she had grown alarmed by what she saw at Facebook. The company repeatedly put its own interests first rather than the public’s interest, she said. So she copied pages of Facebook’s internal research and decided to do something about it.

“I’ve seen a bunch of social networks and it was substantially worse at Facebook than what I had seen before,” Ms. Haugen said. She added, “Facebook, over and over again, has shown it chooses profit over safety.” Okay fine. Facebook is a for-profit company with obligations to its shareholders, and at various points it has a choice between doing pro-social things that are expensive or doing anti-social things that maximize its profits. Sometimes (she asserts, and I don’t particularly disagree) it chooses profit over public good. This is not a huge surprise, incentives being what they are, but it is good for policymakers and the public to know about the particular cases. It is good because, if we know about these choices, we can make informed decisions about regulation and enforcement. If Facebook sometimes chose to break the law to maximize profit, then regulators should punish it. If everything that Facebook does to maximize profits is legal , but some of it is horrible , then we should write new laws to make the horrible stuff illegal. If Facebook does things that are bad for the world then policymakers should try to make it stop. Basic stuff.

But here is another fact from that same Times article: Ms. Haugen has also filed a whistle-blower complaint with the Securities and Exchange Commission, accusing Facebook of misleading investors with public statements that did not match its internal actions. …

Ms. Haugen’s complaint to the S.E.C. was based on her document trove and consisted of many cover letters, seven of which were obtained by The Times. Each letter detailed a different topic — such as Facebook’s role in spreading misinformation after the 2020 election and the impact its products have on teenagers’ mental health — and accused the company of making “material misrepresentations and omissions in statements to investors and prospective investors.” She was so concerned about Facebook putting profits over the public good that she filed a complaint with the SEC about how Facebook misleads investors . Schematically, the general form of this complaint is:

> Facebook maximizes profits for shareholders instead of caring about the public good.

In its public statements, however, it says “we care about the public good, not just maximizing profits for shareholders.”

Shareholders are deceived: They think that Facebook is committed to the public good and are sad to find out that it is only maximizing profits for them.

Therefore Facebook should give the shareholders some money, to compensate them for this deception. (Or it should give money to the SEC, which might share some of it with the shareholders and some of it with the whistle-blower, to vindicate the right of shareholders not to be deceived.)

This is weird , right? That the shareholders are harmed by the company maximizing profits more than they expected? I don’t mean that it’s wrong , or logically inconsistent; it makes sense if you supply a few assumptions. (Something like: “Facebook went too far in maximizing short-term profits, in a way that is bad for its brand image and public perception, which will cause it to lose customers and be more strictly regulated, which will be bad for profits, and for shareholders, in the long run.”)

I just want to suggest that it’s weird . There is a classic view that the interests of shareholders and the interests of society sometimes diverge, that sometimes companies put the financial interests of their shareholders (profit) above the good of society, and that an important job of government is to find and regulate those cases of market failure. It’s cheaper to dump your industrial waste in a river than to pay for safe disposal, so companies do that to maximize profits, so governments write laws to prevent them from doing that, etc. The shareholders say “focus on profit above all else” and society says “well not above all else.” And then companies have an optimization problem: They have to maximize profit, constrained only by staying within the rules.

This is such a standard […]

source Facebook Makes Profits, Shareholders Complain

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