Facebook Accord With U.S. to Elevate Privacy Oversight to Board

(Bloomberg) -- Facebook Inc. is nearing a settlement with U.S. regulators that would elevate responsibility for privacy oversight to the company’s board of directors, according to a person familiar with the matter.

The agreement being negotiated with the Federal Trade Commission, which would resolve a year-long investigation into the social-media company, would put privacy protections on par with the board’s other responsibilities, said the person, who asked not to be named because the discussions are private.

The board changes would come in addition to a record penalty of $3 billion to $5 billion, which Facebook disclosed last week. FTC Chairman Joe Simons is under pressure to craft a tough settlement following a series of privacy scandals at the company, most notably the disclosure that now-defunct consulting firm Cambridge Analytica obtained data on tens of millions of the site’s users.

Simons alluded to the Facebook settlement at a privacy conference in Washington Thursday, saying he expected the agency to impose record fines against companies and that it could reach future agreements that include changes to corporate governance.

Privacy experts and advocates said the agency’s main challenge is to increase the accountability of Mark Zuckerberg, the company’s founder, chairman and chief executive officer.

Zuckerberg’s Control

Zuckerberg owns less than 1 percent of Facebook’s Class A stock, but he controls more than 80 percent of the company’s Class B shares, which have special voting rights. That gives him almost 60 percent of the vote when the company and board make important decisions.

For all practical purposes, “Mark is Facebook and Facebook is Mark,” said Ashkan Soltani, a former FTC chief technologist, noting that many of the statements about the company’s practices come from Zuckerberg himself. “The key factor here is that Zuckerberg still has control over the company and the board.”

Simons said at the conference that holding company executives personally accountable in cases was “on the radar” but “not something where we’re expecting to do this in every case.” Companies resist those moves, prompting expensive litigation that takes away resources from other cases, he said.

“Are you getting sufficient relief for the consumers without having to name these people?” Simons said.

Facebook and the FTC declined to comment on the settlement talks.

Jeff Chester, executive director of the Center for Digital Democracy, said just giving the board oversight over privacy isn’t enough. He called for an independent board with no company representatives that approve the company’s data moves for five years.

"Mark Zuckerberg cannot be trusted to really do anything to protect the public," Chester said.

Lawmakers on Thursday said the idea of giving Facebook’s board oversight of privacy was a step in the right direction but wanted to know more details. Republican Senator John Thune of South Dakota said any Facebook settlement won’t eliminate the need for a national privacy law.

"The idea that there have to be structural changes is absolutely right, whether those structural changes are sufficient, remains to be seen,” said Democratic Senator Richard Blumenthal of Connecticut.

The FTC has been investigating since March 2018 whether Facebook violated a 2011 settlement with the agency aimed at protecting users’ privacy. The commission’s previous record in a privacy case is $22.5 million against Google.

Facebook last week didn’t disclose any other details about the FTC settlement, including whether it would impose restrictions on the company’s business practices. Any settlement would need the support of at least three of the five FTC commissioners.

©2019 Bloomberg L.P.