A Report

on
Theory and Professional Practice

By
Kumar Mohit
Matriculation no: 92209735

Course name- Master’s in Business Administration

Course of study- Business Ethics and Corporate Governance
Subject Code- DLMBAEBECG01
Date- 30.11.2024
Tutor Name: Prof. Naveed Ahmad Khan
Table of Contents
Introduction....................................................................................................................................1

The Relationship Between Corporate Governance, CSR, and Sustainability...............................2

Corporate Governance: Definitions and Importance..................................................................2

Corporate Social Responsibility: Concepts and Theories..........................................................3

Sustainability: Definitions and Scope.........................................................................................3

Interconnection between Corporate Governance, CSR, and Sustainability..............................4

Theoretical Foundations: Agency Theory and Stewardship Theory..............................................5

Agency Theory...........................................................................................................................5

Stewardship Theory...................................................................................................................6

Application of Both Theories in Corporate Governance.............................................................6

Case Study: Real-Life Business Scandal (Facebook Scandal).....................................................7

Overview of the Scandal............................................................................................................7

Analysis Through Agency Theory..............................................................................................8

Analysis Through Stewardship Theory......................................................................................9

Comparison of the Two Theories in This Context......................................................................9

Lessons Learned and Recommendations...................................................................................10

Key Lessons from the Scandal................................................................................................10

Recommendations for Future Corporate Governance Practices.............................................11

Role of Regulatory Bodies and Governance Standards..........................................................13

Encouraging Corporate Responsibility and Sustainability.......................................................13

Conclusion...................................................................................................................................14

References..................................................................................................................................15

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Introduction
Corporate governance (CG), corporate social responsibility (CSR), and sustainability are essential
components in the contemporary business landscape (Dwekat et al., 2022, 1705-1739). Corporate
governance refers to the processes and structures through which companies are controlled and
directed, ensuring accountability, fairness, and transparency in a company's relationship with all
stakeholders, including shareholders, employees, customers, and the inclusive community. CSR
reflects the responsibility of businesses to contribute positively to society, addressing social,
environmental, and ethical concerns beyond mere economic transactions. Sustainability focuses on
meeting the needs of the present without compromising the ability of future generations to meet their
own needs, emphasizing environmental stewardship, social well-being, and long-term business
feasibility. These three concepts are progressively interconnected and critical as businesses are held
to higher ethical standards, expected to act responsibly, and accountable to a wide range of
stakeholders (Ferrell et al., 2019, 491-501). In the digital age, the implications of poor governance and
unethical practices have been highlighted through various scandals, particularly in the technology
sector, where companies handle massive amounts of personal data. The most significant example of
a scandal 2018 Facebook data privacy breach involving Cambridge Analytica. In March 2018, it was
revealed that a political consulting firm, Cambridge Analytica, unethically accessed the personal data
of millions of Facebook users through a third-party app developed by Global Science Research (Hinds
et al., 2020, 102498). The Facebook users’ harvest data is not only from the users who installed it but
also from their friends, resulting in the unauthorised collection of information from around 87 million
Facebook users. This data was used to create psychographic profiles that influenced political
campaigns, including the 2016 U.S. presidential election and the Brexit referendum. The scandal
raised serious concerns about Facebook’s governance practices, data privacy policies, and its
responsibility towards users, regulators, and society at large. It underscored the growing importance of
strong corporate governance, ethical leadership, and responsible data management in the digital age.
The Facebook-Cambridge Analytica scandal serves as a case study to explore the relationship
between corporate governance, CSR, and sustainability, examining how failures in these areas can
significantly harm individuals, society, and the business itself (Hemphill & Banerjee., 2021, 101797).

In this study, Analyze the Facebook scandal using three key concepts, corporate governance,
corporate social responsibility, and sustainability.". It explains these concepts and then discusses how
Facebook’s governance structure failed to safeguard the user’s personal information and traditional
ethicality. Suitability of CSR in handling social responsibility such as data violation and the place of
sustainability in trust and establishment stability. Employing appropriate theories like the Agency and
Stewardship theories, this study will be useful in highlighting ways of attaining better corporate

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governance that will help in avoiding scandals and making the business world more responsible in the
future.

The Relationship Between Corporate Governance, CSR, and Sustainability

Corporate Governance: Definitions and Importance
Corporate governance may be defined as processes that govern the interaction with organisations, it
covers the formalities under which a business organisation is managed, and standards in place to
make the organisation responsible to the people who invested in it. These stakeholders include the
shareholders, the employees, the customers, the suppliers, and the society in general. Corporate
governance has central importance to ensure that companies are being managed efficiently, and
responsibly (Scherer & Voegtlin., 2020, 182-208). The issues of corporate governance are significant,
it assists in protecting the interest of shareholders and stakeholders in that, it forms a basis for
decision-making and management control. It still goes to reduce or reject extraordinary corruption like
fraud or misrepresentation among outfits that have strong governance mechanisms. This not only
saves the corporate image but also assists in establishing credibility among the investors and the
public in general (Almagtome et al., 2020, 1077). Every organisation needs to have good corporate
governance to realize good long-run performance. It is clear that any company that is lucky to have
good governance structures in place is well prepared to manage risks that may come its way. Good
governance helps because accountability and ethical best practices greatly increase the chances of
moving to greater financial performance, and the duration of return signifies sustainability (Kurniati,
2019, 1289-1309).

However, successful implementation of corporate governance can increase the competitiveness of the
company. In the current world market, consumers want to have products made under ethical
standards and by socially responsible organisations. Business organisations that implement sound
and high standards in corporate governance always stand a better chance of getting and keeping
customers, investors, and talented employees. Corporate governance strong relation with the
regulatory commission. Most countries have developed laws and regulations as measures of
enhancing good governance practices. Business firms that observe these rules of corporate
governance regulation are most likely to avoid legal complications and consequent penalties
underlining the current value of corporate governance (Roberts et al., 2020, 602-626).

Corporate Social Responsibility: Concepts and Theories

CSR political concept that defines the responsibility of business beyond the direct, legal, and
economic duties as they maintain and manage their operations (Tamvada, 2020, 2). The social
environmental, and ethical consequences of the business solutions, CSR means the management
should be responsible for the company and its stakeholders. There are several themes and
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assumptions of CSR and the most significant theory is the Stakeholder Theory. It shows that
businesses aim for the improvement of stakeholder value and shareholder Theory businesses should
improve value only for shareholders. This approach makes businesses attempt to know their
stakeholder's needs and issues that affect them. Another theory is the Triple Bottom Line postulates
that it is possible and necessary to compute financial results plus social and environmental returns
(Miemczyk & Luzzini., 2019, 238-259.). The three Ps profit, people, and planet signify the fact that
corporate management has a value proposition that combines business profitability, treatment of
people, and impact on the environment.

CSR can assume different corporate activities such as donations to charity, relations with
communities, employee relations, and production processes that are environmentally friendly. The
principles of CSR become popular among numerous organisations for proving their social
responsibility and then maintaining a good image (Le, 2023, 4565-4590). CSR is important because it
opens up opportunities to improve the status of a company and its brand. People believe that
companies should be socially, responsibly and consumers opt to buy products from socially
responsible companies. This is because they know about the matters, such as climate change, there
is equality between men and women, and they want to support a company that recognizes and stands
for these problems. Understanding customers and their needs is a key element towards realizing long-
term success through responsible practices. There are non-recognition-based advantages of CSR,
where CSR can be economically productive. In cases where companies adopt social responsibility the
level of risk exposure to social factors is considerably reduced and the efficiency of operations is
enhanced through the adoption of improved methods of use of natural resources, firms can minimize
wastage and therefore improve their efficiency and competitiveness.

Sustainability: Definitions and Scope

Sustainability is the capacity to live and satisfy needs now without risking access for future
generations to enjoy the same or generic needs. Sustainability in the context of business means the
development of activities that support the sustainable use of natural resources, social assets, and
economic resources. Sustainability refers to economics, and humanity ecology in a way in which the
three are interrelated (Ruggerio, 2021, 147481). There are three main pillars of sustainability, that are
strongly supported environmental sustainability, social sustainability, and economic sustainability.

Environmental sustainability: The aspect of environmental sustainability is concerned with the

extent to which business activities harm the environment. These are cutting out emissions, protecting
resources, and boosting diversity.

Social sustainability: Social sustainability is a functional concept centered around social justice and
reference to community standards (Doorn et al., 2019, 112-123.). Social sustainability is when
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organisations assess the smash-up of their activities in communities within which they operate and
seek to uphold the right labor policies, change of employees, and social justice.

Economic sustainability: Sustainable economics is the basic level concerned with achieving
sustainable economic returns while at the same time promoting sustainable economic operations
(Polasky et al., 2019, 5233-5238). This implies promoting activities that bring about the economic
development of the nation without the negative impacts on the natural and social resource base.
Sustainability covers a wide field of problems, including climatic change, resource scarcity, social
justice, and company management. Sustainable Organisations are more prepared to address evolving
market demands, address stakeholder needs, and overall, facilitate a more sustainable environment.

Interconnection between Corporate Governance, CSR, and Sustainability

Corporate governance, CSR, and sustainability are related concepts and all aim at putting proper
control mechanisms to address the management of operations in a business organization. The
connections between these three spheres should be comprehensively understood if timely work on a
shifting paradigm of corporate responsibility is to be achieved (Teck et al., 2019, 136).

Alignment of Goals: Compliance with general business principles and best practices of corporate
governance helps Corporations achieve their goals consistent with responsible economic activity and
sustainable development. While structures of governance work, companies are likely to adopt
sustainable practices as opposed to short-term gains. It also assists those organisations in generating
value for all stakeholders and at the same time mitigating the risks (Zaman et al., 2022, 690-752).

Transparency and Accountability: CSR and sustainability initiatives are required in other countries
that are challenged by corporate governance systems’ lack of transparency and accountability (Adel et
al., 2019, 301-332). Good governance practices simply disclose social and environmental impacts for
stakeholders to evaluate organisation performance, and encourage them to practice good
governance. Transparency defines and strengthens the credibility and sustainability of organisational
communication which fosters stakeholder engagement.

Stakeholder Engagement: CSR involves consultation with stakeholders to appreciate their

expectations and complaints. The selection of corporate governance frameworks is aimed at
increasing the representation of different stakeholders in organisational decision-making (Aguilera et
al., 2021, 1468-1497). These companies may achieve a better understanding of the solutions for the
key CSR and sustainability problems and generate better outcomes.

Risk Management: The problem of risk associated with social and environmental challenges cannot
solved without strong corporate governance. When CSR and sustainability become part of corporate
governance, organisations are in a position to predict risks such as reputational, legal, and market
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risks (Karwowski & Raulinajtys‐Grzybek, 2021, 1270-1284). These measures also prevent a crisis
from occurring and increase future resistance and sustainable development.

Long-Term Value Creation: The relationship between corporate governance, CSR, and
sustainability is realised to enhance the development of sustainable value for corporations and their
stakeholders (Wu & Jin., 2022, 15457.). Sustainability and improvement of overall business
performance would lead to increased customer trust, greater consumer loyalty, and improved
organisation image, financial reports, and bottom lines. This is good for the business and also aligns
with the overall organisational, social, and environmental objectives.

Theoretical Foundations: Agency Theory and Stewardship Theory

Agency Theory
Agency theory is about the relationship between the owners of a company the principals and the
managers who run it the agents (Löhde et al., 2021, 390-405). This study also looks at relational
contracts and focuses on the relationship between a business's owners and managers and how some
problems result from this split. In different kinds of business, the owners are shareholders but are not
actively involved in running the business. Another assumption of agency theory is that managers are
self-serving agents and are likely to act in their self-interest to the detriment of the shareholder’s
interest. A manager is inclined to engage in actions that would help increase bonuses or help protect
one's job, even at a huge expense to the firm and shareholders. Such behavior results in what is
called “agency costs” the costs experienced in making managers more accountable as they carry out
the shareholders’ mandate.

To reduce these agency problems, agency theory provides several preparations, the most common
structure that links managerial rewards with those concerning the entire company is called
performance-related pay which can be implemented through bonuses in the form of monetary rewards
or company stocks (Mio et al., 2020, 2465-2476). This ensures that the managers exercise efforts in
the management of the company with the view of increasing the business assessment to benefit the
shareholders in the future through the disposal of the company’s stock. Including independent boards
of directors and audits, can prevent management misconduct due to the implementation of a good
corporate governance system. In sum, agency theory repeats the importance of control and
monitoring systems to ensure managers exercise proper behavior in shareholders’ interest to minimize
the agency cost and improve the efficiency of corporate governance

Stewardship Theory
Stewardship theory has a different perspective on how managers and owners relate and is
diametrically opposite to agency theory because the former does not consider the manager a self-

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serving individualist, but a steward whose primary consideration is the welfare of the firm and its
stakeholders. Managers act selflessly and ensure the company succeeds, and everyone within the
society is treated fairly than help themselves.

In stewardship theory, the main concern revolves around the relationship between the managers and
the owners (Chrisman, 2019, 1051-1066). It states that managers understand how other
organisational stakeholders can contribute to the overall organisation and can be relied on to make
decisions that are useful to the whole entity. This theory assumes that when managers are given
freedom and encouragement they assume certain responsibilities towards the outcomes and they
ensure that their decisions are made in the best inputs of the organisation in the long run. Stewardship
theory emphasizes that shareholders should have a set of clear organisational values and orientations
and a commitment to teamwork (Nijhof et al., 2019, 145-163). When employees have the feeling that
they are valued and people around them give them some sort of power, they are more likely to act in a
way that is good for the company. The result in improved decision-making, increased employee
morale, and ultimately improved company results. It is positive to view management and maintain the
right environment to ensure managers act as stewards of the company’s resources.

Application of Both Theories in Corporate Governance

Both agency and stewardship theories play crucial roles in corporate governance, influencing how
companies are managed and overseen (Swain, 2020, 117-130). Understanding the differences
between these theories can help organisations create governance structures that align with their goals
and values. Many companies find themselves applying elements from both theories. A strong
business implements performance-based compensation from agency theory and also develops a
collaborative and trust-based culture from stewardship theory. This hybrid approach allows companies
to benefit from the strengths of both theories. agency theory applying, companies can focus on
establishing clear policies and procedures that outline the roles and responsibilities of managers. This
results in the preparation of an independent board of directors to supervise the management, control
of financial disclosure, and conducting of audits.. By implementing these mechanisms, companies can
reduce the risk of agency problems and enhance accountability.

Incorporating stewardship theory into corporate governance can lead to a positive organisational
culture (Chrisman, 2019, 1051-1066.). Companies can inspire open communication and collaboration
among employees, leading to a sense of shared purpose. Providing opportunities for professional
development and recognising employee contributions can strengthen the commitment to the
organization. Companies can benefit from balancing short-term performance goals with long-term
sustainability objectives. While agency theory may focus on immediate financial results, stewardship

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theory emphasizes the importance of building a sustainable future. This means considering the
interests of various stakeholders, employees, customers, and the community when making decisions.

Case Study: Real-Life Business Scandal (Facebook Scandal)

Overview of the Scandal
Facebook faced one of the largest data scandals In March 2018, the scandal concerned a UK-based
political campaign company, Cambridge Analytica that harvested millions of user data without their
consent (Laterza, 2021, 119-147). This data is used to encourage citizens to vote in important political
processes, including the election of the American President in 2016 and Brexit. The scandal began
with a company known as Global Science Research (GSR), owned by the researcher Aleksandr
Kogan. To collect data from the people who took the quiz, GSR developed a quiz application on the
social network site, Facebook. An extreme strike that the company collected information on the users
and their friends from Facebook, The company managed to gather information from about 87 million
people, and the quiz was completed by roughly 30,000 participants at that time (Hilton et al., 2021,
601-611). This data is sold by GSR to Cambridge Analytica to construct voters’ psychological portraits
and to convey political ads to them. People criticized Facebook severely for the company’s failure to
monitor the usage of user data by third-party apps. Another weakness of the company at that time
was that its policies enabled the developers to collect huge information reaching from the users and
their friends. The scandal itself activated investigations by the regulatory authorities in the U.S. UK,
and the whole European Union. It also led the Facebook CEO, Mark Zuckerberg to appear before the
US Congress to offer an apology for negligence in users’ data privacy, and also gave him a word on
plans for enhanced privacy (Trautman, 2019, 20, 43). The recent scandal of Facebook and Cambridge
Analytica also told some of the major problems in Facebook’s management structure and its lack of
proper corporate social responsibility.

Analysis Through Agency Theory

Agency theory looks at the contractual relationship between the principal, owners, shareholders,
agents, managers, or executives within an organization (Marashdeh et al., 2021, 1-15). There is a
characteristic agency problem because managers are agents for the shareholders, but they might tend
to ignore the interests of shareholders. The theory claims that organisations require appropriate
mechanisms of monitoring managerial activities with a view of guaranteeing that managers work in the
best interest of shareholders and do not undertake actions that are fatal to organisational future value.
Concerning agency theory, it is easy to identify that the management of the company did not meet
expectations or provide any priority to the users of the social media site and the prospective clients,
customers, and shareholders. Facebook’s primary KPI has been to get users to click on things
possible and share data about themselves so that Facebook could sell ads to them. But to accomplish

7
these objectives, the company ignored the privacy and security of individual data belonging to its
users. The executives especially of Facebook were legal agents supposed to protect the interests of
the shareholders of Facebook (Schwarz, 2019, 117-141). The opening several application
programming interfaces for third parties and giving them access to terabytes of user data without prior
protections Facebook put itself into the barrels of heavy doubt and potential losses in quadrillions. The
scandal created an uncomfortable dip in the overall worth of Facebook and destroyed users' and
advertisers’ credibility. From the agency theory, the board of Facebook was not prepared efficiently
enough with appropriate mechanisms to control their managers to reflect their decisions to the general
welfare of the company’s shareholders (Dong et al., 2021, 29-58). While executing the strategy, the
top management of the company ignored the consequences and focused on making quick money to
harm the company's sustainability and its users. More control by the board of directors, challenges,
and balances in the business system used in the latest control of user's data use and the general
protection of corporate image.

Analysis Through Stewardship Theory

The Stewardship theory is in opposition to agency theory, agency theory is that managers pursue their
self-interest most of the time, but stewardship theory reports that managers are stewards of the
company and act in the best interest of the shareholders and stakeholders (Obermann et al., 2020,
989-1011). Stewardship theory postulates that authorities are delegated to managers they also incur
certain responsibilities and, arrive at sound decisions. When applied this theory provides an
understanding of why Facebook’s executives should have moved faster to prevent the leakage of
users’ data and address ethical concerns. Managers are supposed to be responsible to the company
head and its stakeholders, so Facebook managers should be more attentive and responsible in
protecting the users’ data and managing the issue responsibly. It is even shameful for Mark
Zuckerberg and other leaders of Facebook company to have seen the company as only a business is
profit making thing but as a social institution accountable to the users, and regulator of society. If
Facebook’s management saw themselves as good corporate citizens, they cultured a close
relationship with users, gained their confidence, and protected the organisational reputation. Facebook
fell short of its responsibility of being a steward in the case of the data breach, and mechanisms in
place to prevent the improper handling and use of data, and their reaction to data misuse, an
exposure viewed as unresponsive and poor. Facebook barely met the mark of expectations it tried to
change its attitude after the scandal was discovered. Stewardship theory submits the idea that
managers work in the best interest of agency shareholders apart from a short-run focus and being
ethical (Capelle-Blancard et al., 2021, 123005.). Facebook’s leaders adopted stewardship theory, they
would have been more responsible for the improper use of data together with making sure that such

8
an incident did not happen. It would have enhanced the company’s corporate governance and made
the relationship with users more effective in the long-run performance.

Comparison of the Two Theories in This Context

Two models of corporate governance are agency theory and stewardship theory and the combination
of these two models can be used when analyzing the Facebook scandal and the management of the
company to contribute to the leakage of the users’ data (Lacruz et al., 2020, 473-485). Agency theory
studies the issue of conflict between the principal and the agent and indicates that the executives of
Facebook were reveling more in the business side of things they worked towards their short-term
gains forgetting the company and the users., Facebook had no acceptable mechanism in its
governance structure to ensure that its leadership worked in the interest of its stakeholders (Medzini,
2022, 2227-2251). Due to highlighted data harvesting and its monetization, the company acted
inappropriately to the users’ rights and lost its reputation. Stewardship theory focuses on managers as
the stewards of the organization which means they must do good for everybody. Facebook’s
leadership did not measure up to its stewardship responsibility by ensuring the ethical use of users'
data. If the executives of Facebook had put users’ and society’s interests first, it would have been
possible not just to misuse data, but to fend off the reaction of the scandal (McCoy et al., 2023, 11-23).
Consequently, agency theory ignores the problem of increasing monitoring and controlling the
managers’ self-serving behavior, while stewardship theory focuses on value-based activities and
owners and managers as stewards of the company’s assets and reputation. Both theories specify that
scandals such as the Facebook data breach can be prevented by practicing ethical leadership, equal
transparency, and accountability.

Lessons Learned and Recommendations

The Facebook-Cambridge Analytica scandal provides a good example of how detrimental poor
corporate governance data management, and ethical control, enterprises and societies (Huang &
Krafft., 2024, 13). It all came to light in 2018 that user information of 87 million Facebook profiles was
illegally obtained and used for political marketing comprising the American Presidential vote in 2016
and Brexit. The lessons learned from this scandal are discussed in this section in addition to offering
suggestions for better corporate governance and analyzing the part played by regulatory bodies and
governance standards in the prevention of future malfeasance.

Key Lessons from the Scandal

The Importance of Data Privacy and User Consent

The message Learned from the Facebook scandal is Users’ data should be respected and users
should only be enrolled in the study after fully understanding what is involved. Facebook policies let

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third-party applications freely access users' and friends’ details without consent (Balash et al., 2022,
3397-3414). This aspect showed that businesses have to embrace user privacy and ensure that they
inform users on how they are imaging data shared. In recent years, data privacy has become a major
concern and companies who don’t safeguard consumer data get heavily penalized and suffer
tremendously from brand damage.

The Need for Stronger Oversight and Accountability

The control used by Facebook’s management to manage the broadcasting of data was also lax to
third parties, enabling corporations Cambridge Analytica to take advantage of those weaknesses.
Facebook again failed to have proper controls and accountability towards the data of users, indicating
that these should be integrated into the organisations internal systems (Srinivasan, 2019, 39). The
corporate entities lack such policies and structures to check the progress, the business ends up being
involved in some sort of corruption that affects its stakeholders. Besides that, corporate governance
involves the use of proper structures, policies, and procedures that enhance the visibility, supervisory
mechanisms, and responsibilities that propel organisational ethical standards functions at different
company levels.

Ethical Responsibility in the Digital Age

Facebook data scandal emphasized the ethical obligation, which businesses possess concerning the
information of users (White & Boatwright., 2020, 101980). Here, people’s information was employed
for political agenda control specifically, it brought controversy to how technology companies impact
democracy. Businesses must be under ethical rules and regulations that seek to benefit society and
users. The scandal also established results of advancing decision-making processes linked to high
financial gains at the customers’ disadvantage without concern for the future consequences to the
company’s image.

Reputation and Trust as Key Business Assets

The company's most delicate point is showing how easily loses the trust of users as a result of a
scandal (Confente et al., 2019, 492-504). Restoring this trust is quite a task and instance, may require
significant investment from organisations. This report has seen it necessary for companies to
appreciate the fact that reputation is an organisational capital and once damaged, it does have an
impact on business even in the future. It becomes clear that companies should emulate transparency
and ethical behaviour to sustain and build confidence with stakeholders.

Recommendations for Future Corporate Governance Practices

Strengthening Data Protection Policies (GDPR)

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There is an increasing need for companies to come up with better ways to protect the information of
their users. This includes guaranteeing that Third-Party developers and partners to a product are
GDPR compliant and that the use of data is limited and controlled (van de Waerdt, 2020, 105436).
Organisations should consider formulating the best policies about the usage of data that they intend to
collect to avoid such incidents and also lock down several people to the data and its usage and, the
regular studying of its data utilization. Users should also be fully informed of how their data is being
used and be able to decide what data is used.

Enhancing Transparency and Communication

Business entities must ensure that data is collected with the approval of the user and this must be
followed with humble information to the user on how their data is processed. Another means of
implementation is that any changes in data practices or privacy policies should be updated and
communicated appropriately. Accountability is maintained by increased transparency which is
essential to rebuild customer trust and also to regulators (Ahmed et al., 2020, 100871).

Creating a Strong Ethical Culture

The companies to ensure a culture of ethics and responsibility from bottom to top, this begins with
leadership by example, with top workers detecting and approving ethical business practices and
ensuring that everybody is answerable for their performances (Jha & Singh., 2023, 317-339).
Therefore standardized policies should be laid down and the performance of general corporate
governance and other related corporate behaviours and practices such as ethical handling of data and
business practices should be undertaken and employees trained well on similar practices. As it
pertains to ethical issues, companies should promote free speech and report incidences without
suffering retaliations.

Independent Oversight and Auditing

Minimum independent compliance reviews of administrative data and corporate governance

exposures and opportunities should be a standard for review detection (Aluchna & Kuszewski., 2020,
242). External auditors or oversight bodies can be very useful in offering a critical check and balance
on the company with a view of making a report that certifies compliance with the legal requirements in
data protection laws and ethics. It can be beneficial to spot potential problems before they turn into
huge scandals and more severe problems.

Balancing Profit with Responsibility

The stability and responsibility of an activity should be a priority over the economic and financial
benefit of an action (Fallah et al., 2020, 1222). While there is pressure to generate revenue from user
11
information and exploit customers’ information-trust exchange, it can be terrible. Companies need to
be profitable, but they also should consider their duties to users, and keep this in mind while making
decisions. Ethical decision-making should become part of corporate strategy in guess so that the
company does not become enthralled by generating revenue at the expense of the users.

Role of Regulatory Bodies and Governance Standards

Regulatory Bodies and Data Protection Laws

Data protection regulatory bodies present the core of the standards and enforcement related to these
aspects. The Facebook scandal showed that strict rules have to be put in place, especially concerning
the handling, collection, and processing of personal users’ data (ur Rehman, 2019, 1-11). After that,
laws that have been established to protect users’ rights and require companies to be responsible for
data processing saw the light of the day GDPR in Europe and CCPA in the United States, for
example. These laws lay down the parameters for data gathering, analysis, and use and also offer
legal compensation in case of violations.

Stricter Enforcement and Penalties

The legal systems have to ensure that regulatory authorities set severe measures on organisations
that risk privacy and violate the laws or lack proper corporate governance systems (Gadinis &
Miazad., 2020, 1401). For Facebook, after the scandal, fines, and legal cases were applied, but for
prevention, the regulatory authorities’ actions must be more active. The acceptance of increased
measures by the regulators by ensuring that the specified laws are implemented and enhancing the
measures on companies who violate the set laws then it force the corporate world into enhancing their
protection of data.

Promotion of Global Governance Standards

The Organisation for Economic Co-operation and Development (OECD) Principles of Corporate
Governance and the International Corporate Governance Network (ICGN) serve as overarching
ethical and good governance guides to businesses around the world (Vohra & Ajmeri., 2019, 305).
Such standards should be voluntarily implemented to check on those organisations that are running
their businesses recklessly. They also require companies to be stakeholders and accept business
practices that sustainable in the society and environment.

Encouraging Corporate Responsibility and Sustainability

Other reforms that regulatory bodies should also encourage are the fact that CSR and sustainability
are aspects of good corporate governance. The social platform crisis showed that firms always have
an opportunity to manipulate societal and political processes (Gkeredakis et al., 2021, 100344).
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Consultative frameworks must call on companies to be socially responsible in their relationships with
users, governments, society, etc. Ad policy specifically should be ethical, user privacy should be
valued and business practices should not negatively impact social & political structure.

Conclusion
The Case of Facebook-Cambridge Analytica of 2018 unveiled the most significant concerns with data
privacy, corporate governance, and ethical Judgement. The scandal implicated Cambridge Analytica,
a British firm that obtained personal information on tens and possibly hundreds of millions of Facebook
users without consent to provide this information for the 2016 U.S. presidential election and the Brexit
campaign. The data was obtained by a quiz app from Global Science Research (GSR) and CA
received it, targeting more than 87 million users. Due to negligence in handling user information, they
received criticism on the disclosure of user information with third-party applications, including
regulatory authorities in the U.S., UK, and the EU. If examined with the help of the agency theory, one
could notice that the strategic management of Facebook concentrated on the quarterly profit instead of
the users’ confidentiality issue, the company’s top management turned a blind eye, which hurt the
value of the business. The executives did not listen to and serve the interests of stakeholders,
primarily targeting raw permit ad income to buy consumer data and violate their privacy. These
unethical behaviors happened because Facebook has no working governance structures and
supervision. In the light of the stewardship theory, of agency, Facebook’s management also left the
user data vulnerable and did not act as ethical stewards of the company either. Managers should have
been more responsible towards users and other interested parties to serve the best interest of the
organization in the long run instead of acting in the best interest of the company’s cash flows.
Facebook follows and respects ethical standards it could have avoided this scandal and saved its
image. The implications of this unethical behaviour are evidence that data privacy is crucial to
safeguarding the public interest, that regulation is necessary, and understanding the moral duties of
the company operating in the new digital economy. This scandal reveals that business organisations
on social media embrace the Culture of Transparency, Investor and Consumers Protection, and
Ethical standards. The development of corporate governance should include enhanced data protection
regulation, a separate supervisory mechanism, and more focus on the organisations’ revenues along
with their accountability. Finally, the leaked data scandal of Facebook is a good example that
businesses must protect customers’ information, not conceal information, and should operate ethically.
Organisations should implement proper governance and put emphasis on corporate responsibility,
most importantly the companies should respect GDPR to avoid a repeat of such incidents.

13
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