After reading Module 1 and 2. Please utilize what you have learned from the COSO cube and use the cube to tease out what is wrong with the corporation (Module

1. Senior management and board considerations of what happened

Managers play one of the most important roles in a company, and in this case, it is no

different. It is the manager’s job to set an example and they set the tone from the top, down.

Facebook CEO acknowledged that they failed in their global responsibility to protect their

customers. Before the scandal, Facebook failed to inform its users on how to protect their

personal information from access by third parties who took their information without their

consent. After the data breach, Facebook promised to inform users who had their data shared

with Cambridge Analytica to make them aware of those whose privacy got compromised. On

the other hand, Cambridge Analytica suspended its chief executive following the scandal.

The senior management from both companies had to take action to prevent their reputation

from further damage. Facebook distanced itself from the scandal and stated that it did not

collide with Cambridge Analytica to steal user data without their consent or knowledge.

However, Facebook did acknowledge that it failed in its role to protect user information from

unauthorized access. Facebook management acknowledged their role in user data harvesting

and the CEO testified and apologized in front of the Congress. However, Facebook did not

sell user data to Cambridge Analytica, but instead Cambridge Analytica exploited the

vulnerability in the Facebook apps to collect data without user knowledge or consent.

Following the fraud, Cambridge Analytica downfall started which resulted in the collapse of

the company and it was later defunct on May 1, 2018. It is hard to tell whether there was any

conspiracy between Facebook and Cambridge Analytica to share user information for money.

However, Cambridge Analytica did accept that it accessed more than 30 million user profiles

without their consent.

2. Corporate Governance considerations

The main purpose of governance is to enhance shareholder’s wealth through the

achievement of a firm's objectives. However, apart from that, corporate governance also helps

to protect stakeholder values and interests by improving performance and holding the

organization accountable. There are many key principles in corporate governance principles,

these included but not limited to: Leadership – Corporate governance oversees key strategies

and leads a culture to help the business perform at its best. Fairness – Stakeholders at all

levels should be treated equitably and reasonably. Transparency – the organization should not

need to keep secrets and outsiders should be able to observe the organization’s transactions

and processes. Stakeholder engagement – ensuring that significant stakeholders are engaging

with the business to position the business for the best possible outcome. Accountability –

owning and embracing strategies, as well as the tasks needed to achieve the organization’s

long-term goals.

First, we look at Facebook whose objective is “We believed that people being able to

share the information they wanted and having access to the information they wanted is just a

better world.” The key thing to focus on in their objective for us to discuss is the part of

people sharing the information they wanted. Then we need to look at Cambridge Analytics

which was to “change audience behavior”. For this case, the corporate governance

considerations of Facebook that should be focusing on are the fact that Facebook is unable to

protect their customers' privacy and allows their user’s personal data to be collected by a

third-party company. Analyzing the 5 components of governance, there are three main

components that these companies failed in were fairness, transparency, and accountability.

The reason they failed in fairness was because first Facebook did not ensure protection for its

users and Cambridge Analytics also took that information without consent. Who later sold the

collected data without consent from the Facebook users. As with most social media,

Facebook business depends on the customers trusting the company to look after their data,

yet Facebook violated that trust, showing the ineffectiveness of its governance and its board.

They also then failed in transparency. For both companies they failed to notify customers that

they were taking that information and even more they failed to notify them about what that

information was being used for. Then lastly, accountability. While some may say that they

did take accountability, it wasn’t until after the fact that they assumed responsibility.

Accountability starts before a wrong action and starts the second a decision is made as a

business that prides themselves in what they do. When a company such as Facebook makes

their objective for people to share the information they want and that information is taken

without their consent, it creates a problem in the third objective. In conclusion, the

consequences of this lack of appropriate governance are many things and this caused

oversight and reduced shareholder value. There is also the job reductions and reputational

damage, along with reduced morale amongst employees and anger amongst users and

lawmakers. Overall, making what these companies did a big concern in all aspects.

3. Governance actions

The 2013 Facebook scandal, also known as the Cambridge Analytica affair, brought to light a

significant event for the social media company. It has shown that Facebook did not do their

best to protect the user's privacy data and this is the main reason that put their user's privacy

in danger. Facebook's management team and board of directors established many governance

steps to address the data privacy issues that led to the data leak. They began by conducting an

internal investigation to assess the scope of the incident and any other possible data privacy

problems. The business recruited forensic AU data experts to look at how the data was

gathered and handled, as well as to determine any potential harm to user privacy. Many of the

senior Facebook management team including their chief information security office, the vice

president of global public policy and their chief legal officer have decided to leave the firm

after this scandal happened. Their resignation has represented a major change in Facebook's

leadership, and this also serves as a promise to their users to avoid similar incidents in the

future. Facebook's response to this data privacy scandal includes generating new rules and

procedures. Such as limiting the amount of data that the third-party apps can access from

users, have higher data privacy standards, and introducing the transparency tools that allow

users to monitor which apps are now accessing their data. Then, the corporation realizes the

need for increased openness to reestablish public trust and has taken many efforts to improve

operational transparency. Hiring a chief privacy officer to manage data protection efforts,

introducing a data abuse reward program to motivate data users to report breaches, and

developing a public-facing website with information on the company's data privacy rules and

procedures are all part of the plan. Facebook's management team and board of directors

backed the new privacy standards and recognized the need for greater accountability and

openness. The firm is dedicated to working more closely with authorities and lawmakers to

guarantee compliance with applicable data privacy laws and regulations. As we can see,

Facebook's management team and board's governance efforts in reaction to the Cambridge

Analytica crisis reflect a commitment to supporting the company's principles of

responsibility, accountability, and openness. Although recovering the confidence of our users

and stakeholders is a continuing task, it is critical to establishing a more secure and

trustworthy Facebook.

Acct 551- Group 3 Modul 1

Cambridge Analytica and Facebook Scandal

Maria Bonilla, Voratitt Chunharuckchot, Si Yu Wang,

Peiqi Zhang, Bayisa Feye

Q1 Background on Cambridge Analytica

Cambrian Analytica was a London, England based marketing firm that was founded in 2013. Cambridge Analytica was an affiliate of the SCL Group, which is a research and strategic communication company. With five locations all over, including New York, Washington, London, Brazil, and Malaysia. Their focus is on providing research and data analytics to create advertisements to their clients, more specifically “data-driven campaigning and marketing services” for political campaigns (Bloomberg.com). On their website it even says:

“At Cambridge Analytica we use data modeling and psychographic profiling to grow audiences, identify key influencers, and connect with people in ways that move them to action. Our unique data sets and unparalleled modeling techniques help organizations across America build better relationships with their target audience across all media platforms.” (cambridgeanalytica.org)

It was originally created to focus on the U.S. election. One of the key investors in the company was Robert Mercer and Steve Bannon. Both who were republican and key players in President Donald Trump. It gained quick success with 25 years of expertise in the area. However, their success was short-lived after their scandal with Facebook. The company was defunct as of May 1, 2018. Before the downfall of the company however, Emerdata was formed in 2017 to be successor to Cambridge Analytica. This is where most people moved to work following the scandal.

Q2 What happened? (Facts of the case and the scandal)

In 2018, the Facebook–Cambridge Analytica data scandal was exposed. The scandal spans many years with the British consulting firm Cambridge Analytica was able to collect personal data belonging to millions of Facebook users without their permission and the data was then used for political advertising by Donald Trump’s campaign.

The data was collected with the use of a Facebook app called "This Is Your Digital Life", developed in 2013, by data scientist Aleksandr Kogan and his company Global Science Research. The app contains a series of quiz questions, and the users were required to log in or sign up for Facebook, giving Kogan access to the user’s personal data such as profile, birth date, and location. With the access, Kogan was able to build psychological profiles on users, and collected not only the personal data of the Facebook users, but also the data of the Facebook friends of anyone who took the quiz via Facebook's loophole as well. In the end, Kogan’s app was able to collect up to 87 million Facebook user profiles. After that, Cambridge Analytica used and sold the data to provide analytical assistance to the 2016 presidential campaigns of Ted Cruz and Donald Trump.

In 2018, information about the scandal was exposed by Christopher Wylie, a former Cambridge Analytica employee, in interviews with The Guardian and The New York Times. As a result, the Facebook founder and CEO, Mark Zuckerberg was questioned, and the Facebook stock price dropped by 17%. Furthermore, in response to the violation, Zuckerberg said that the data of the app Facebook was not breached, as no passwords were stolen, or any systems were infiltrated. Rather, it was a violation of the terms of service as Facebook’s policy clearly prohibited the selling of data collected with this method, but Cambridge Analytica still sold the data anyway. Moreover, Mark Zuckerberg also wrote in a response to this scandal, “I’ve been working to understand exactly what happened and how to make sure this doesn’t happen again. The good news is that the most important actions to prevent this from happening again today we have already taken years ago. But we also made mistakes, there’s more to do, and we need to step up and do it.”

After Facebook apologized for their role in the data harvesting and their CEO Mark Zuckerberg testified in front of Congress. In July 2019, it was announced that Facebook was to be fined $5 billion by the Federal Trade Commission due to its privacy violations. In October 2019, Facebook agreed to pay a £500,000 (approximately $643,000) fine to the UK Information Commissioner's Office for exposing the data of its users to a "serious risk of harm". The fine was originally issued in October 2018, as part of the ICO's investigation into the use of social media data for political purposes. In May 2018, Cambridge Analytica filed for Chapter 7 bankruptcy.

Q3 – Impact on Employees

The Facebook scandal involving the data mining firm Cambridge Analytica has significantly impacted Facebook's employees, both directly and indirectly. The scandal, which broke out in 2018, exposed how Cambridge Analytica had collected information on tens of millions of Facebook users without their knowledge and exploited it to sway the 2016 US Presidential election (Confessore, 2018). Many negative effects, including investigations, penalties, and adjustments to Facebook's privacy policy, have resulted from the scandal. However, losing faith in the company's leadership has been one of the scandal's most profound effects on Facebook's workforce. The company's decision to collect millions of users' data without their knowledge or consent upset many staff. Many employees at Facebook now believe they can't trust their managers to act in their users' best interests because of the company's lack of accountability and transparency. The scandal has also affected Facebook by drawing unfavorable media attention and negative press attention. The firm's staff have been under a lot of stress due to having to cope with continual criticism and bad press. The criticism has also hampered the company's ability to attract and keep top personnel, as many candidates are leery of joining an organization regarded as dishonest or unreliable. Moreover, the scandal has made it clear that Facebook has to strengthen its internal controls and compliance procedures (Rodriguez, 2019). Facebook has adopted several measures to safeguard user data and avert other security breaches in reaction to the crisis. This has necessitated a substantial investment in new employees and technology, which has affected the company's bottom line. The increased effort and strain many Facebook employees have experienced are one of the scandal's most significant effects. The scandal put employees under stress because the corporation had to devote a substantial amount of

resources to dealing with the crisis. Also, the increasing focus on compliance and risk management that has resulted from increased public and regulatory scrutiny has increased staff workloads.

The scandal's consequence has been to lower employee morale at Facebook. With the company's management and the unfavorable news, many employees have lost faith. Several employees feel that the company's activities are undermining their efforts to positively affect the world, which has caused them to become cynical and apathetic. However, regarding solving employee issues and enhancing the company's culture and reputation, creating an independent oversight board has been a significant step forward for Facebook. The board, composed of professionals from various industries, assesses Facebook's content moderation standards and suggests enhancements. Employees now have more faith in the business's dedication to moral behavior, which has also helped rebuild public confidence in the platform. Facebook has expanded its spending on privacy and security in addition to the oversight board. The corporation has introduced several programs to foster openness and moral conductFor instance, Facebook launched a "Transparency Report" to offer regular updates on the volume of requests for user data that the company received from governments all over the world and established a "Data Transparency Lab" to assist researchers in better understanding how user data is collected and used (Sonderby, 2019). Facebook has focused on enhancing the company's culture and image, a significant step towards addressing employee concerns. This has involved several initiatives, such as the creation of a new team devoted to diversity and inclusion, the opening of a "Wellness Center" to support staff members' mental health and the adoption of a new code of conduct that outlines the company's principles and expectations for ethical conduct. Therefore, the Facebook scandal impacted workers, but the corporation has moved to ease these worries and enhance its culture and reputation.

Q3 – Impact on Customers

In 2018, Zuckerberg acknowledged that he had not given enough consideration to Facebook's global responsibility and had made a significant mistake. He stressed that relying solely on app developers' claims to follow the rules was not enough for Facebook, and that the company must take action to ensure that developers are actually complying with the guidelines.

Facebook has disclosed that the number of individuals who may have had their data compromised is potentially as high as 87 million, exceeding the previously reported figure of 50 million. This estimate was based on the number of friends that each user may have had. In contrast, Cambridge Analytica claimed to have obtained data for only 30 million individuals. Facebook will inform all users of the apps they have used and the information they shared with those apps through a notification on their Facebook feed. Users will have the option to remove any apps they no longer wish to use. Those who may have had their data shared with Cambridge Analytica will be notified. The majority of affected users, according to Facebook, are based in the United States.

A recent survey by Consumer Reports indicates that the Cambridge Analytica controversy has led to 70% of Facebook users changing their behavior. More than 33% of the respondents have taken actions like being more cautious about their posts, modifying their

privacy settings, and turning off location tracking. This scandal seems to have impacted people's willingness to share personal information with other technology companies. A recent survey shows that almost 74% of the respondents are now more careful about sharing data with companies like Twitter, Instagram, and Google.

Zuckerberg has indicated that it would take several years to address the problems Facebook is facing. Recent information suggests that the Facebook and Cambridge Analytica scandal may have had a larger impact than previously reported, with up to 87 million people potentially affected. Even though the scandal has occurred, Facebook's policy on data collection and sharing remains the same. Zuckerberg acknowledged that the company had not fully recognized its responsibilities and pledged to take a more proactive stance in ensuring that app developers adhere to regulations.

In conclusion??, consumers were significantly impacted by the Facebook scandal, which resulted in concerns about the safety and confidentiality of their personal information on the platform. As a result, many users became more careful about sharing personal information and modified their privacy settings. The scandal also made many users question their trust in Facebook and other tech firms, with most showing greater hesitance to share information with other platforms like Twitter, Instagram, and Google. Furthermore, the scandal emphasized the necessity for increased accountability and transparency in how companies acquire and manage personal data, resulting in regulatory and legislative attempts to strengthen consumer safeguards.

Conclusion should be at the end of the paper. Q3 – Impact on Regulators

At the start of 2018, there was a noteworthy data breach or information leakage & data spill called Facebook Cambridge Analytica scandal. Without their authorization, Cambridge Analytica, a political advising expert business, got millions of Facebook users' personal information. As a result of that, these data were employed to influence or attack the outcome of the 2016 United States presidential election. The software harvests data on Facebook friends of users, in conjunction with their name, gender, date of birth, zip code or habitation, and hobbies. At that time, by using this personal information, it was able to complete Facebook users' profiles and their mutual friends were made. Then, these profiles' personal information have been used by Cambridge Analytica to target single Facebook users along with political satisfaction and advertisement deliberated to affect their voting decisions.

The time when Facebook Cambridge Analytica disclosures turned up the impact the scandal had in the works regulations. Facebook’s information data gathering scandal shook the privacy of Facebook user individuals all over the world in 2018, in part as a result of the incident happened at a time of elevated critical observation or examination and special attention on world privacy and regulatory view.

Because of the controversy or disagreement, Facebook incorporation came under enormous inspection from the regulators, investors and public. Facebook is now dealing with many issues due to the controversy, including securing regulations, a decrease in Facebook users' trust and reputational harm. Facebook was notably impacted by the data privacy scandal.

Facebook’s business was under close observation or inspection by authorities, investors, and the public. The stock market benefit of Facebook was reduced by many billion dollars because of the considerable decline in Facebook stock market price.

One of the main hindrances of Facebook is increased regulation. After the Facebook scandal incident, many governments have suggested new rules that could regulate or control the number of data that a Facebook incorporation and other company can harvest and use. The business of Facebook incorporation noticeably impacted by these regulations; thus, the incorporation is actively crusading against them.

The decrease in user trust that Facebook incorporation is experiencing is another issue. Numerous people have lost trust in Facebook incorporation because of the controversy and are presently unconfident whether they believe the Facebook with their autobiography or personal information and moving forward because of this users’ deletion of their Facebook accounts. The Facebook data scandal created how momentous data privacy is & exemplifies the need for businesses to be unfasten or open regarding how they harvest and use data. Facebook received unkind censure for its inattentive handling of Facebook user personal information and dearth of frankness with respect to its purposes.

References:

1. https://www.easyllama.com/blog/facebook-data-privacy-scandal/ 2. https://www.cmswire.com/information-management/how-facebooks-cambridge-analytica

-scandal-impacted-the-intersection-of-privacy-and-regulation/ 3. https://abc7news.com/consumer-reports-facebook-use-crtv-tv-cambridge-analytica/42481

86/ 4. https://www.weblite.com.my/blog/what-the-facebook-scandal-means-to-your-customers 5. https://apnews.com/article/north-america-technology-business-mark-zuckerberg-faceboo

k-privacy-scandal–e0e0df2083fe40c0b0ad10ff1946f041 6. https://www.vox.com/policy-and-politics/2018/3/23/17151916/facebook-cambridge-anal

ytica-trump-diagram 7. https://www.npr.org/2019/10/30/774749376/facebook-pays-643-000-fine-for-role-in-cam

bridge-analytica-scandal 8. https://fotislaw.com/lawtify/case-study-on-facebooks-data-breach/ 9. https://www.reuters.com/article/us-facebook-cambridge-analytica-factbox/factbox-who-is

-cambridge-analytica-and-what-did-it-do-idUSKBN1GW07F 10. https://www.bloomberg.com/profile/company/1584842D:LN?leadSource=uverify%20wa

ll 11. https://www.cambridgeanalytica.org/ 12. Confessore, N. (2018, April 4). Cambridge Analytica and Facebook: The Scandal and the

Fallout So Far. The New York Times. 13. Rodriguez, S. (2019, May 16). Facebook has struggled to hire talent since the Cambridge

Analytica scandal, according to recruiters who worked there. CNBC; CNBC. 14. Sonderby, C. (2019, May 23). Sharing Our Latest Transparency Report. Meta.

https://www.reuters.com/article/us-facebook-camb

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