Meta Investor Lawsuit Asks, Can Blind Focus On Profits Hurt Profitability?

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Expecting Meta’s board to be responsible for world events may seem a stretch, but at least one aspect of this suit deserves board attention.

A recent investor lawsuit against Meta CEO Mark Zuckerberg and Meta’s board of directors is questioning which factors are most important for a board of directors to consider while attempting to remain profitable. Is it the board of directors’ fiduciary responsibility to always choose decisions that benefit the health of communities the company serves and the health of the global economy over decisions that are primarily based on improving profits for shareholders?

According to a press release, the lawsuit, filed by shareholder rights advocate James McRitchie, focuses on the persistent refusal of Meta’s directors and officers to recognize the threat that Meta’s prioritization of profits over the interests of communities around the world (including its users) poses to its own investors. The lawsuit claims the algorithm governing Meta’s Facebook platform was changed to make it “an angrier place,” which led to harsher political discourse around the world. The Facebook platform has been accused of causing harm to children in recent months as well.

While expecting Meta’s board of directors to be responsible for world events might seem like a stretch, there is an aspect of this lawsuit that does deserve the attention of corporate boards. According to the press release, “The complaint also details how Meta failed to spend money to prevent its platform from being used to promote modern slavery, ethnic violence, organized crime and vaccine disinformation, to the detriment of global GDP.”

Any time a company fails to change or halt egregious behaviors that the company should have had knowledge of, the company may be vulnerable to lawsuits. While it is not clear if that is the case here, just being accused of ignoring their Facebook platform being used to “promote modern slavery, ethnic violence, organized crime, and vaccine disinformation,” creates a reputational problem for Meta. This is a potential crisis for the Meta board that begs for a response.

Profits Over People and the Planet?

The increased focus on ESG issues is forcing all corporate boards to deal with this extremely complex question: Is there a point when prioritizing profits can hurt a company’s profitability?

The decisions each board makes to remain profitable will be different. Here are some things to consider:

• Know what your shareholders care about most. There are some people who will be happy to make money at all costs, but that group may be smaller than in the past. More people these days want to feel good about making money, so boards may need to adapt. If a company has shareholders that care deeply about the environment, then trying to make money by exploiting the environment might spark a lawsuit or actions against the CEO and board. Many shareholder groups want to see disclosures on how companies are going to address Climate Change while they make the company more profitable, so boards may need to demonstrate that the company is willing to address their concerns.

• Choose morality and trust over profits. There are very few cases where immoral behavior has gone over well with investors. Directors should insist that board members and members of leadership adhere to the company’s own code of conduct.  The company’s business strategy should live up to the reputation or legacy the company has built in the past or strives to have in the future. Building trust in the short term generally leads to greater profits in the future.

• Questionable profits quickly turn to losses. When companies exploit their customers, injure workers or people in the communities they serve, commit crimes or endorse questionable policies, shareholders will likely take notice and take action. Those type of actions also attract the attention of regulators. Ultimately companies that put profits above all else wind up getting fined by regulators or fighting investors in court. Those outcomes can destroy stock price and severely damage a company’s reputation and brand.

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