Facebook (NASDAQ:FB) and its CEO, Mark Zuckerberg, are no strangers to controversy.
In recent years, the social network giant and its chief have been scapegoats for a broad range of issues, including elevating hate speech, infringing on privacy rights, leveraging users' personal data, monopolizing digital media, and suffocating local journalism.
The company has run into trouble for allowing its site to be co-opted by Russian hackers to influence the 2016 election, for its role in the Cambridge Analytica scandal, and for abetting the genocide against Rohingya Muslims in Myanmar. As a sign of Facebook's massive of influence, Zuckerberg has been called to testify in front of Congress more than once on issues ranging from Russian infiltration of the platform to Facebook's influence on politics and the media to its Libra digital currency consortium. As a sign of the controversy it's stirred, the company has been the subject of multiple #DeleteFacebook campaigns.
With the recent social unrest in the U.S. following the killing of George Floyd at police hands, however, Facebook may face its most crucial test yet.
On Monday, a group of company employees staged a virtual walkout to protest Zuckerberg and the company's refusal to act when President Trump posted language that seemed to violate the company's own rules, saying, "When the looting starts, the shooting starts."
Zuckerberg's inaction led several employees to resign, and others, as well as civil rights leaders, condemnned the move. Timothy Aveni, a Facebook engineer who just stepped down, said, "Facebook, complicit in the propagation of weaponized hatred, is on the wrong side of history." A statement from a number of civil rights leaders said, "[Zuckerberg] did not demonstrate understanding of historic or modern-day voter suppression and he refuses to acknowledge how Facebook is facilitating Trump's call for violence against protesters."
Zuckerberg's decision notably contrasted with that of Twitter (NYSE:TWTR) CEO Jack Dorsey, whose site has begun adding disclaimers to such tweets, saying that they glorify violence. The Facebook chief even went as far as to call out Dorsey for the policy, and said that Twitter was wrong for fact-checking President's Trump.
Controversy again is mounting over the move, and #deletefacebook has again become a popular hashtag on Twitter.
In Zuck we trust?
Part of the reason that Zuckerberg is often under scrutiny is because the tech giant essentially has a monopoly in social media, as it also owns Instagram and WhatsApp, and Facebook, along with Google, dominates digital advertising. That monopoly, which emerges from Facebook's competitive advantages and network effects, essentially means that there is nowhere similar for Facebook users to go even if they are disgusted with the company. No other social network has nearly as many users as Facebook, and there's no photo-sharing app with more than 1 billion users to compete with Instagram, nor is there a messaging app that can easily replace WhatsApp.
During past controversies, Facebook's user growth has more or less continued unabated, showing that there's been little impact on the business despite the outcry in the media. However, the real risk from such incidents isn't the threat of users leaving the platform, but employee backlash, as well as increased regulation over a platform that has so much control over communication.
Facebook has long been one of Silicon Valley's most desirable places to work, but the company's luster has faded in recent years. On Glassdoor's list of Best Places to Work, Facebook ranked #1 in 2018, rating 4.6 out of 5, but this year its ranking fell to #23, with a score of 4.4. Similarly, Zuckerberg once ranked #1 on Glassdoor's list of top CEO's in 2013, and was ranked #4 as recently as 2016, with a 97% approval rating. By last year, that ranking had fallen to #55 with a 94% approval rating, showing the number of employees who disapprove of him had doubled.
Compared to the average company those numbers are still strong, but they are moving in the wrong direction, showing the company's internal reputation is getting worse. That affects not only employee morale, but also recruiting and Facebook's ability to build a pipeline of executive talent. The heat Zuckerberg is taking over his recent stance will likely only exacerbate the backlash.
Similarly, such controversies also spark the ire of regulators. Though the EU's GDPR protocol was passed before the Cambridge Analytica scandal, the data breach helped justify the new regulation, which has impacted Facebook's ability to do ad targeting in Europe and therefore maximize the potential of its ad business. Last year, the Federal Trade Commission fined Facebook $5 billion for violating privacy rights.
Though a number of critics, including Facebook's former security chief, have called for Zuckerberg's resignation over the years, the Facebook founder isn't going anywhere. He controls a majority of the voting rights, and he's been running the company since he was in college. At 36 years old, he could easily still be in charge in 2050.
Over the near term, the risk from such controversies like his refusal to be a "arbiter of truth" is likely minimal -- but we are living in volatile times, and it would be at least an eyesore for Facebook to be seen as contributing to violence or any manipulation in the upcoming election. Over the longer term, Zuckerberg could become more of a risk for the company if Facebook employees continue to disagree with him on ethical questions like free speech and privacy.
For a company as powerful as Facebook and in possession of so many competitive advantages, that may not ultimately matter to the stock performance. But it's a risk investors should be mindful of. 2020 has shown how fast and unexpectedly things can change, and a leader like Zuckerberg needs to have the trust of his employees in order to respond effectively to these crises.