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Technology / TECHNOLOGY

Facebook Critics Hope IPO Forces Some Hard Questions

Facebook filed on Wednesday to sell stock on the open market. Its debut is likely to be the most talked-about initial public offering since Google in 2004.((AP Photo/Paul Sakuma, file))

photo of Niraj Chokshi
February 1, 2012

Facebook critics are hoping the company's initial public offering, announced on Wednesday, could provide them with allies in the form of the social network’s future shareholders.

“There are certainly some questions that we hope investors will ask,” said Meg Roggensack, a senior adviser with Human Rights First, a nonprofit calling on Facebook to address how it will deal with user privacy under repressive regimes, as well as other human rights issues.

With its IPO coming in at $5 billion, Facebook is poised for major growth, which “inevitably invites questions about where it will invest,” Roggensack said. How the social network chooses to deal with restrictive governments or how it handles privacy issues going forward could anger users, some of whom have orchestrated boycotts in the past, albeit with limited success. Less user engagement means fewer ads served; fewer ads affects the bottom line.

 

“If you do something and your stock goes down, you get some really irate people,” said longtime industry-watcher Jack Gold, who has worked with companies that have gone public. Facebook settled with the Federal Trade Commission in November, agreeing to 20 years of privacy audits and other conditions, after the agency charged that the network repeatedly allowed information to be shared, sometimes with third parties, and made public despite promises to the contrary.

Users, too, have taken issue with Facebook’s privacy settings in the past, but with limited success. In 2010, a group dissatisfied with Facebook's privacy settings organized Quit Facebook Day. Nearly 40,000 people signed up, roughly 0.005 percent of the site’s current 800 million users.

"It's hard to predict exactly what sort of gaffe they’ll do next, but it would not surprise me if there is yet another one," said John Simpson, director of Consumer Watchdog’s Privacy Project, noting some concerns over Facebook’s recent expansion of its Timeline feature, which makes it easier to visualize, share, and view users’ profile history.

The company’s post-IPO expansion also raises privacy concerns abroad, Roggensack said. Her organization wants Facebook to clarify how it plans to respond to foreign governments' requests for user data or censorship.

In its filing, Facebook said it does not know if it will be able to find an approach to managing its content in China, for instance, that will be acceptable to both the company and the government. “It is also possible that governments of one or more other countries may seek to censor content available on our website, restrict access, block our website, or impose other restrictions that may affect the accessibility of Facebook for an extended period of time or indefinitely,” the company said in its Securities and Exchange Commission filing.

While bad publicity can certainly hurt the bottom line, investor interest may not always align with critics’ goals. In early 2010, Google decided it would no longer censor its search results in China, largely at the behest of cofounder Sergey Brin. Analysts have debated the impact, but Google’s share of the Chinese search market is now nearly half of where it was at the end of 2009, just before the decision. And, after months of resisting, Blackberry-maker Research in Motion capitulated in October to India’s demands that it open its networks there to government surveillance.

Still, a silent few investors can wield some power, said Consumer Watchdog’s Simpson. Because of laws governing public companies, he has been able to use his two shares of Google stock to attend and ask questions at shareholder meetings over the last two years. “That can sometimes be a useful vehicle for raising a point with them,” he said.

Even if investors and critics were aligned, however, it’s not likely that Facebook will make a major misstep and give them reason to act, some consumer advocates said. “If they did something outlandish—misleading some way or another—in their proxy statements or in the initial public offering, there is the potential to take that to the SEC,” Simpson said. But, he added, “I think they would have had things fairly closely vetted.”

There may be no reason to expect any hiccups as the company goes public, but ultimately its IPO may encourage the company to be more cautious generally, Gold said. “It’s part of the maturing process of companies and I think that’s a good thing.”

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