Publicly-traded companies face increasing accountability to the socially-conscious general and investing public to promote public good on environmental, social, and corporate governance, so-called “ESG” issues. Recent activity at the Securities and Exchange Commission (SEC) suggests that it is also scrutinizing how companies are handling ESG issues. There are signs that the SEC is taking an increased interest in companies’ disclosure of business risks that that could impact their reputation. If true, it would mark an expansion beyond the SEC’s traditional focus on false or misleading disclosures about business operations or financial performance. However, even though the public at large has scrutinized corporate behavior and ESG policies in recent years, a question remains whether such behavior and policies are indeed material to investors, the threshold for requiring disclosure. The SEC’s focus on corporate behavior comes amidst a period of unprecedented access to advertising and information about companies attributable to social media platforms, as well as unprecedented access to investing. Recent events suggest that the SEC may bring enhanced scrutiny to companies’ disclosure on issues like reputational impact, arguably a more subjective area than business operations and financial performance.

Facebook Whistleblower

In October, Frances Haugen, a former data scientist at Facebook, publicized various accusations against her former employer in an interview on 60 Minutes and testimony in Congress. Haugen is also believed to be the individual who recently filed multiple complaints with the SEC hoping to attain whistleblower status. According to those whistleblower complaints, Facebook consistently chose to maximize growth rather than implement safeguards on its platforms. “Whistleblower: Facebook is Misleading the Public on Progress Against Hate Speech, Violence, Misinformation,” CBS News, Oct. 4, 2021. Among other allegations, the complaints posit that Facebook relaxed safeguards on content after the 2020 election, which purportedly allowed misinformation to spread and played a role in the January 6 attack on the U.S. Capitol. The complaints further allege that when faced with internal data and research indicating how online platforms have led to violence and perpetuated worsening body image issues in young girls, Facebook systematically and willfully ignored those concerns. Further, according to the complaints, Facebook represented to the public that its artificial intelligence technology would assist with keeping hate speech and violence off its platforms. Thus, at their core, the whistleblower complaints assert that Facebook misled investors with public statements that did not match its internal actions. Facebook has since released multiple statements touting its use of research to identify and alleviate problems that were highlighted in the whistleblower allegations. See, e.g., “Our Comprehensive Approach To Protecting the US 2020 Elections Through Inauguration Day,” Facebook press release (Oct. 22, 2021); “Our Approach to Maintaining a Safe Online Environment in Countries at Risk,” Facebook press release (Oct. 23, 2021); “Hate Speech Prevalence has Dropped by Almost 50% on Facebook,” Facebook press release (Oct. 17, 2021); “Advancing Our Policies on Online Bullying and Harassment,” Facebook press release (Oct. 13, 2021).