Facebook has once again found itself embroiled in political controversy.
Outcry over the social media platform’s failure to address disinformation campaigns, ethnic and religious violence, and privacy breaches has led to calls for legislators to regulate and investigate the company.
While Facebook has cast itself as a benevolent tool for social change that connects the world and provides a space for open dialogue, recent investigations have revealed a management team fixated on growth at the expense of the platform’s social and political impact. That has left Facebook deeply intertwined with — and having contributed to the rise of — movements as divergent as #MeToo and the alt-right.
This reality exposes Facebook’s failure to understand that corporations cannot really be politically agnostic. Despite Milton Friedman’s proclamation that “there is one and only one social responsibility of business, to increase its profits,” Facebook’s experience reveals the reason that corporations cannot fixate solely on growth or maximizing stock prices at the expense of understanding and adapting to social environments: Ignoring the social realities that companies exist within is not only misinformed — it is also bad business.
Facebook is not the first company to learn this lesson. In the tumultuous 1960s, companies showed the challenges — and opportunities — that came with social turmoil. The decade was marked by rising civil rights, antiwar, student and feminist movements demanding changes to the status quo. Recent history highlights how some companies such as BP and Volkswagen resisted these demands, or undertook public relations campaigns in lieu of enacting real changes. Bank of America’s leadership, however, took a different tack.
The company confronted accusations from all sides. The Congress of Racial Equality charged that the bank had not hired racial minorities; antiwar protesters said it profited from the Vietnam War; and student protesters derided its contributions to “the exploitation caused by capitalism.” But rather than fight back or launch a public relations effort to restore the company’s luster, Bank of America’s leadership chose to change its entire business strategy.
President A.W. Clausen aimed to integrate these sociopolitical issues into management and executive practices. A 1972 company report explained the executive team’s operating premise: “Significant social issues cannot be divorced from the more traditional operations of a modern corporation.” The bank’s leadership was not driven by a moral sense that it needed to respond to the demands of the rights movements. Rather, Bank of America’s executives understood that if their business practices did not incorporate changing realities, the bank’s survival would be at risk.
They knew that to be successful, Bank of America had to maintain legitimacy, which the bank’s senior vice president of social policy, James Langton, defined as “the public perception that an institution is serving a societal need.” To Langton, this was “the charter to operate in a democratic society.” Without such validation, corporations risked being “strangled by legislation and regulation,” or, in the extreme, being nationalized.
Protecting Bank of America’s legitimacy dictated swift changes. In response to CORE’s allegations of hiring discrimination, Bank of America inaugurated a minority hiring program. To address student protests and activist investors, Clausen changed the overarching strategic direction of the bank, cemented in the bank’s 1970 annual report.
Following through on these changes, Bank of America established a social policy department and a task force to investigate one of the bank’s most pressing social issues at the time: credit discrimination against women. Unsurprisingly, the task force recommended that the bank change its lending policies to eliminate discriminatory lending practices that were created because single women were believed to be greater credit risks than single men.
An awareness of the changing lives of women as well as state-based legislation on credit discrimination encouraged Bank of America to act swiftly to adopt and publicize a progressive lending policy. The bank changed its credit scoring for single women and launched a publicized training program for branch lending officers before, not because of, the 1974 Equal Credit Opportunity Act. In short, Bank of America decided that the solution to credit discrimination was not technical but social, and that leading the way in overcoming this practice was good, not bad, for the bottom line.
“Merely to survive, business will have to change with society; if more than bare survival is our goal, business will have to change in advance of society,” Langton argued. The need to be proactive meant having dedicated departments continuously scanning and monitoring “the social and political forces that might affect the corporation” and getting out in front of legislation or competitors when issues were percolating.
Bank of America’s executives were openly critical of the way that many companies responded to demands for social change by fighting back legally, employing public relations or lobbying campaigns to protect their companies, or simply ignoring critics. To them, such strategies threatened the bottom line, rather than protected it.
But in the 1980s and 1990s, deregulation of the financial industry created new social and political realities that enabled, or even forced, Bank of America and its peers to refocus on maximizing their stock prices and producing “immediate and certain results,” according to Clausen, its former president.
These changes have been reflected in the skyrocketing importance of maximizing shareholder value for U.S. companies. According to critical management scholars Mahmoud Ezzamel, Hugh Willmott and Frank Worthington, in 1989, the term “shareholder value” could be found only three times in corporate annual reports. A year later, however, that number had soared to more than 380. In a survey of 600 top executives and directors in 2014, McKinsey consultants discovered that nearly two-thirds thought that pressure to maximize short-term profits had increased since 2009.
This climate has shaped Facebook’s response to criticism of its platform. Instead of undertaking real cultural change, the social networking site has targeted its critics, launched a public relations offensive and lobbied policymakers. Facebook is not alone in responding to criticisms and demands in this way. With the focus for most corporations on maximizing short-term profits and shareholder value, many companies have ignored some of the lessons that previously guided firms on how to adapt and survive in periods of massive social and political change.
If James Langton were grading Facebook’s response by the standards he employed at Bank of America, he would probably have failed their approach, including the use of a public relations group that targeted George Soros. In Langton’s mind, corporations that relied on this sort of “ideological response” to social and political pressures would eventually “create an ideological conflict where none presently exists.”
Today, most large corporations have structures in place, like public policy departments, that helped guide Bank of America’s successful response to social and political challenges. But the focus on short-term profits has obscured the pathway to long-term success.
The failures of Facebook to adequately understand and adapt to social realities has already resulted in increased regulation in the form of the recent E.U. General Data Protection Regulation and may fuel further regulation in the United States or, even worse for Sheryl Sandberg and Mark Zuckerberg, the breaking up of the firm.
Ironically, Bank of America shared Facebook’s fear of legislation and regulation. But the bank avoided this fate by acknowledging and pragmatically addressing social concerns at the center of their operation, not ignoring them.