Facebook Shareholders The Latest Group To Ask Facebook To Drop Its Encryption Plans

from the but-the-biggest-shareholder-still-has-most-of-the-votes dept

Facebook is implementing end-to-end encryption in its Messenger service. This has made a number of government officials unhappy. Claiming this will lead to an increase in child sexual exploitation, multiple governments (including our own) have pounded their respective tables in Facebooks' direction, demanding the company not give its users secure communications.

Now, it's more than just government officials. The BBC reports some of Facebook's shareholders have been swayed by the international table-pounding.

Investors at Facebook's annual stockholder meeting will vote on a proposal to postpone the firm's plans for end-to-end encryption.

The firm says it wants to make the measure the default option across its messaging platforms to protect privacy.

But activist shareholders say this would make it nearly impossible to detect child exploitation on Facebook.

The group wants the company to delay the move until after its board of directors studies the risk further.

The shareholders' proposal [PDF] copy-pastes a lot of anti-encryption talking points about the supposed impossibility of tracking down users trafficking in child pornography. First, the proposal chastises Facebook for doing such a great job working with authorities to tackle the problem.

The New York Times reports Facebook Messenger was responsible for “nearly 12 million of the 18.4 million worldwide reports of” CSAM in 2018…

Then it moves on to passing on threats from US legislators to backdoor encryption or otherwise regulate Facebook out of the encrypted communications market.

Facebook may face significant regulatory risk if it cannot curb child sexual abuse on existing platforms or on encrypted messaging. Senate Judiciary Committee member Marsha Blackburn stated in a December 2019 hearing that Facebook and peers need to “get your act together, or we will gladly get your act together for you.” Most of the Committee supported that sentiment.

The shareholders are asking for a delay until at least February of next year before implementation so the Board of Directors can compile a report on the negative aspects of implementing end-to-end encryption in Messenger. This demand confuses the issue, claiming this is about privacy rather than security.

Shareholders request that the Board of Directors issue a report by February 2021 assessing the risk of increased sexual exploitation of children as the Company develops and offers additional privacy tools such as end-to-end encryption.

While it's true additional security measures will be a net benefit for users' privacy, the key issue is the security of the communications, rather than ensuring Facebook isn't able to see the content of users' messages. Privacy has slider bars when it comes to users and their dealings with both Facebook and the government. Security either is or isn't. It's not something you can sort of have.

This table-pounding likely isn't going to go anywhere. These shareholders are in the minority. Even if it was all of Facebook's investors, Mark Zuckerberg still controls a majority of Facebook's voting shares. Unless he can be talked out of it, the measure isn't going to pass. And Zuckerberg appears to want Messenger to be as secure as WhatsApp -- another frequent target of government outrage.

Encryption is coming to Messenger. And about the only thing that can stop it -- or at least severely hamper it -- is legislation like the EARN IT Act, which disingenuously targets both encryption and Section 230 immunity under the guise of protecting the children.

Filed Under: encryption, end to end encryption, shareholders
Companies: facebook

Potentially Big News: Top CEOs Realizing That 'Maximizing Shareholder Value' Isn't A Great Idea

from the well-look-at-that dept

For the better part of two years, I've been noodling on a post (I've half written it a bunch of times) talking about how perhaps the biggest problem with so much of what we see today can be tied up in two related concepts: "fiduciary duty to shareholders" and the idea of "maximizing shareholder value." I talked a little about this a few weeks back in highlighting how almost all of the problems that people talk about when they complain about big tech can really be traced back to Wall Street and this idea of maximizing shareholder value.

Conceptually, maximizing shareholder value makes some sense, but only if you don't think about it for more than a few minutes. Because the whole thing falls apart as soon as you ask "over what time frame?" I first wrote about this back in 2006, in what I called the "time function of profits," in trying to understand why so many people were claiming that Craigslist's approach to grow slowly (but massively) by leaving most of their site free and not doing all sorts of icky stuff, was seen by some as "leaving money on the table" or even being anti-capitalist. As I pointed out then, that only made sense if you thought in the very short-term. Taking a longer term view suggests that "maximizing" profits in the short run is likely to create significant problems in the long run, whether it be competition or customers annoyed at you and the like. In a follow up post I did in 2008, I pointed out that maximizing profits shouldn't mean screwing your customers. The real issue is the time frame. If you want to maximize profits for just this quarter, then, yes, screwing over your customers is a viable strategy.

However, if it's more long term, then the incentives should change quite a bit. It's just like the Prisoner's Dilemma. If you are playing that game once, the incentives are heavily weighted towards cheating. However, if you're playing it many, many times, the incentive structure changes, and it should move to a more cooperative model. For some reason, however, this hasn't happened that much in real life. Many businesses (and many folks on Wall Street) assume that having a "fiduciary duty" to "maximize shareholder value" or "shareholder profits" means squeezing out every penny of profits right away, with no concern for the future.

Perhaps stating this backwards thought process most clearly was former big record label exec Dick Morris who once famously told Wired magazine that if someone is asking you to give up some money now to make more later, it means that "someone, somewhere, is taking advantage of you." And, of course, one of the foremost proponents of this theory was Milton Friedman, who argued that the only responsibility of a company is to its shareholders, and that companies need to maximize the return to those shareholders. Friedman trashed the idea of social responsibility for corporations, but he, himself, didn't seem to recognize how the long term played against the short term here. Ignoring any sense of social responsibility, in favor of short term maximization, would lead not just to long term social harms, but also to limits on the long term value for shareholders.

In recent years, we've started to see some pushback on these ideas. A few months ago, there was the announcement of a new Long Term Stock Exchange, designed to respond to these challenges, by giving companies more time to accomplish stuff than the usual quarterly heartbeat. But perhaps much bigger news is that the Business Roundtable, a gathering of top CEOs, has now put out a letter saying that shareholder value cannot and should not be the only focus of a corporation.

I'd argue that the letter is not that well-written, and given the signatories, I'm sure it went through millions of dollars worth of lawyering before anyone agreed to sign onto it. However, it does set up a much more thorough framework for thinking about all of the stakeholders that a company should consider in doing business: customers, employees, suppliers, communities, and shareholders. It's signed by a bunch of big company CEOs (the letter itself is one page, then there are 11 more with signatures).

Of course, it pays to be cynical about such things. It's one thing to say all of this, another thing altogether to actually walk the walk. And, certainly, some of the signatures come from CEOs who run companies who don't exactly have a strong history of paying attention to most of the stakeholders listed above. Indeed, if you want to find some of the worst behaving companies -- especially towards customers, employees, and communities -- this is a ready-made list (I mean, AT&T's and Comcast's CEOs, Randall Stephenson and Brian Roberts, both signed on to this). So, no one should take this as a real commitment to change.

That's only going to come if the companies are seen to be putting this into action, and that's where the public (and the media) need to come into play. When companies -- especially those who signed onto this document -- are seen behaving badly, it should be called out, and this letter should be referenced. Yes, it's quite probable that many signed onto this thinking that it's a good PR effort to pretend to be good corporate citizens for a day or two. But if we want to enact real change, and have companies get past the short term view of screwing over everyone to "maximize shareholder value," it's only going to happen if these execs are held to the very standards they claim to support.

Filed Under: business roundtable, maximizing shareholder value, priorities, profits, shareholder value, shareholders, stakeholders

IBM Sued By Shareholders For Cooperating With The NSA... Decimating Sales In China

from the economic-impact-of-nsa-spying dept

Ever since the Snowden leaks began, we've been talking about how the harm for the US economy -- and especially the tech industry -- was going to be massive (much more damaging than anything the NSA might possibly prevent with its spying). We've already seen Cisco attribute poor earnings to the Snowden revelations, and now a large IBM shareholder is suing IBM, claiming that its relationship with the NSA resulted in the company's disappointing third quarter results:

The plaintiff in the complaint, Louisiana Sheriffs' Pension & Relief Fund, said this threatened IBM hardware sales in China, particularly given a program known as Prism that let the NSA spy on that country through technology companies such as IBM.

The Baton Rouge pension fund said the revelation of Prism and related disclosures by former NSA contractor Edward Snowden caused Chinese businesses and China's government to abruptly cut ties with the world's largest technology services provider.

It said this led IBM on October 16 to post disappointing third-quarter results, including drops in China of 22 percent in sales and 40 percent in hardware sales.

As for the legal basis for the lawsuit, the pension fund is arguing that IBM should have revealed the potential of this kind of information coming public as a "risk factor." Chances are this lawsuit will go nowhere, but it does highlight, yet again, just how damaging the NSA's activities can be on the US. When compared to how little the NSA has actually accomplished, according to various folks in Congress who have been briefed, it certainly seems like the NSA is doing a lot more harm than good. Hopefully this leads other companies to be much stronger in pushing back on the NSA's demands, knowing that it can significantly harm their business prospects outside of the US.

Filed Under: china, lawsuits, nsa, shareholders
Companies: ibm

AT&T Tells Shareholders To Mind Their Own Business Concerning Its Relationship With The NSA

from the it's-everyone's-business dept

Verizon and AT&T have remained remarkably silent concerning all of the reports of NSA surveillance, which is fairly incredible, given that it appears that they have been the major players in basically handing over full access to their backbone networks to the NSA -- even to the point of volunteering to do so, rather than having to wait for a court order. It's no surprise that, unlike various internet companies, the telcos have not been at all supportive of attempts to allow for greater transparency over how companies work with the NSA.

However, as we noted last month, a bunch of shareholders have filed shareholder proposals with both companies, demanding that they start to file transparency reports concerning how they cooperate with government surveillance. AT&T has flat out rejected this request, saying it won't even include the proposed resolution on the ballot at the annual AT&T shareholder's meeting.

The basic argument? It's none of your business. The letter, embedded below, argues that decisions about transparency are "ordinary business matters" not subject to shareholder approval. Furthermore, it argues that "protecting customer privacy is a management function" rather than a shareholder one. Of course, the issue here is that they're not protecting customer privacy, and the shareholders are pointing out that the concern is that in doing so, it could do serious damage to the company by losing the trust of their customers. AT&T, of course, doesn't care about any of that because, really, who else are customers going to go to?

Filed Under: nsa, shareholders
Companies: at&t

Some Dell Shareholders Don't Know Much About This Leveraged Buyout, But They Know They Don't Like It

from the no-need-for-details,-just-be-angry dept

The Dell deal documents are out and they are short of juicy details; we'll have to wait for the proxy for details on things like just how much of a discount Michael Dell is taking on his shares or what exactly the terms of Microsoft's loan are. There is, though, the information that that loan will take the form of $2 billion of subordinated debt, and that the total cash equity investments from Silver Lake, Michael Dell and MSD will total $2.25bn. This seems pretty sensible; Microsoft is effectively writing half of the equity check, though for a fixed-but-subordinated return, plus emotional benefits or what have you. And if you're worried about how easily debt markets will swallow some $3.25bn of bonds, $5.5bn of Term B/C, and billions of assorted other secured financing,¹ which with $4bn of existing bonds brings Dell to around 4x total leverage, making $2 billion – almost half a turn – of the debt subordinated, long-term, and emotionally committed can’t hurt.

But for most of the fun stuff we’ll have to look forward to the proxy. And that isn't good enough for some people. Reuters reports that the first shareholder lawsuit over the deal has already been filed, one day after announcement, which I assume means it was in the works before the deal was announced. This sort of amazed me:

Some shareholders said they were angered by the lack of specifics about the deal, making it hard for them to determine if the price was fair. The company, which declined to comment on the lawsuit, had said the board had conducted an extensive review of its strategic options before agreeing to the buyout.

I would characterize myself as mildly saddened by the lack of specifics, but that's why I will wait until the proxy is out and then read the specifics. You know there's a whole section of the proxy explaining why the bankers thought the deal was fair, right?²

There’s nothing new here – as Reuters notes, "Almost every merger worth more $100 million prompts a shareholder lawsuit" -- but the speed continues to amaze. And it's becoming ever more a fact of life:

That’s from this depressing report, which also has a sad-comical list of 16 deals each with 15 or more lawsuits filed. (The tech industry averages 4.9 suits, so, y'know, look out for 3.9 more.)

You can sympathize a little. Management buyouts are of course all about bottom-ticking the stock price; management would be pretty dumb if they took the company private at its all-time high. Dell's various stakeholder communications -- all to the tune of "this will is the start of a whole new chapter for Dell, in which everything will remain exactly the same" -- make that pretty clear: the deal has little to do with operational changes and much to do with the fact that Michael Dell thinks that (1) Dell and (2) debt are both cheap right now.

But that's kind of the market, and the fact of life is that if shareholders think that $13.65 is too cheap for their shares, they can always vote the deal down. By all accounts this deal was pretty fully negotiated, so it seems unlikely that the lawsuit will reveal that Dell and Silver Lake would have coughed up an extra $1 a share if the board had just asked more aggressively. And it's no secret that Michael Dell thinks that his company is worth more than $13.65. Even if that hasn't been specifically disclosed yet.

Dell 8-K, Merger Agreement, Voting Agreement [EDGAR]
Dell Buyout Broken Down: Silver Lake Puts in $1.4 Billion [Deal Journal]
Dell Aims for Double-B Rating, Leverage Less Than 4x Ebitda [Deal Journal]
Dell investor sues to block founder’s leveraged buyout [Reuters]
Reasons to Be Suspicious of Buyouts Led by Management [DealBook]
Dell’s Talks Said to Break Up a Few Times Over Pricing [Bloomberg]

1. From the 8-K:

Each of Bank of America, N.A., Barclays Bank PLC, Credit Suisse AG and Royal Bank of Canada and, in some cases, certain of their affiliates (collectively, the “Lenders”) have committed to provide debt financing for the transaction, consisting of a $4 billion senior secured term loan B facility, a $1.5 billion senior secured term loan C facility, a $2 billion ABL facility, senior secured interim loan facilities consisting of a $2 billion first lien bridge loan facility and a $1.25 billion second lien bridge loan facility (or, alternatively, senior secured first lien and second lien fixed rate notes that would be issued in a high-yield offering pursuant to Rule 144A under the Securities Act of 1933), a $1.9 billion term commercial receivables financing facility and a $1.1 billion revolving consumer receivables financing facility, each on the terms and subject to the conditions set forth in a commitment letter dated as of February 5, 2013 (the "Debt Commitment Letter").

2. The answer is always along the lines of "because you paid us to think that," but still.

Other posts from Dealbreaker:

• BofA To Spend Mortgage Savings Telling Everyone How Not-Horrible It Is
• David Einhorn Wants Apple Shareholders To Vote On Voting On Issuing Preferred Stock
• Microsoft Will Take A Low Interest Rate On Its Dell Debt To Demonstrate Its Emotional Commitment

Filed Under: details, lawsuit, leveraged buyout, shareholders
Companies: dell, microsoft

Judge Decides That Grand Theft Auto's Hot Coffee Mod Didn't Deceive Shareholders

from the easter-eggs-remain-legal dept

Hidden "easter eggs" are quite common. These are little things hidden within software, often for the amusement of the programmers. In video games, it's often fun to try to find these hidden parts. It's really kind of a tradition for some. However, folks who didn't quite understand this freaked out a few years back, when the "Hot Coffee" mod/hidden content was revealed within the game Grand Theft Auto. This was a special modification to the game that would unlock a hidden part of the game allowing players to (gasp!) participate in consensual intercourse. It was such a big deal that various Senators proposed laws to prevent such a thing from ever happening again. And, there was even a class action for all those people "damaged" by this mod. And, because no moral outrage directed at companies is complete without a shareholder class action lawsuit, there was one of those as well -- accusing the company of somehow "misleading shareholders" with Hot Coffee. Luckily a judge has realized how ridiculous this is and has dismissed that particular claim in the shareholder lawsuit. Phew. Now software developers will be able to keep adding easter eggs and hidden content without a special explanation for all shareholders.

Filed Under: grand theft auto, hot coffee, shareholders
Companies: take two