Facebook's Board is "RIDING A TIGER": Directors at the embattled social networking giant face risk-scrutiny as they try to balance shareholder value and societal good.

• Author: Tahmincioglu, Eve
• Position: BOARD OVERSIGHT - Cover story

With the U.S. elections looming, all eyes are on Facebook CEO and chairman Mark Zuckerberg and whether he has done enough to ensure that nefarious sources with fake accounts on the social networking site don't derail democracy.

But all eyes should also be on Facebook's board of directors, which according to the firm's own corporate governance guidelines, "acts as the management team's adviser and monitors management's performance."

Good corporate governance at a corporation has never been as critical as in the case of Facebook, which allowed 50 million Facebook profiles to be harvested by data analytics firm Cambridge Analytica and allowed fake accounts from foreign entities to proliferate on the platform, many part of an effort to influence voters. And in late September, Facebook announced yet another hacker breach, with an additional 50 million customer accounts compromised.

Has the board done enough given indications the November elections could still be impacted by Facebook's bogus accounts? Is the company's bottom line going to take a hit largely because of managements security missteps?

Even bigger questions: What exactly is "enough" when it comes to corporate governance in this unprecedented scenario? Does the board even have the power to impact real change given that Zuckerberg has a majority vote and holds the position of chairman of the board?

Some critics say Facebook's dual-class stock structure giving Zuckerberg majority-voting rights undermines the board's effectiveness. Facebook officials counter the company has bolstered corporate governance and is on the right path.

Facebook's directors face immense challenges, because "They're right at the heart of so many changes in society," says Ric Marshall, executive director in the environmental, social, governance (ESG) research team at investment research firm MSCI Inc.

"They're riding a tiger, but they're holding on," he says about the board.

Facebook, he continues, "is still facing enormous risk, primarily in data privacy." The risk, he adds, isn't just the potential for more scandals; it's also the potential for serious pushback from governments. "It's entirely possible that if the board doesn't manage those risks they will end up facing regulations that put the entire business model at risk."

Indeed, a few state attorneys general are reportedly mulling possible regulations on Facebook and other social media companies, and last month, the U.S. Justice Department announced Attorney General Jeff Sessions "convened a meeting with a number of state attorneys general ... to discuss a growing concern that these companies may be hurting competition and intentionally stifling the free exchange of ideas on their platforms."

What's happening at Facebook goes to the heart of the challenges directors deal with when it comes to risk oversight, and the need to sometimes put shareholder value second in order to protect the company and its role in society. And also there's the question of whether a board has the power to make these tough choices when the company CEO and founder is also the board leader.

Nora Chan, a Facebook spokeswoman, told Directors & Boards that changes have been implemented to bolster the board's oversight and to root out fake accounts that impacted previous elections.

There are, however, indications the fixes may be too late for the November elections. This despite the company's investments in security upgrades, which Zuckerberg has already said: "will significantly impact our profitability."

Facebook sees its shortfalls as a function of the Herculean task at hand. "Security is not something that you ever fully solve," said Zuckerberg during a press call in August. "Our adversaries are sophisticated and well-funded, and we have to constantly keep improving to stay ahead. But the shift we've made from reactive to proactive detection is a big change --and it's going to make Facebook safer for everyone over time."

"Over time" is apparently not in time for the upcoming elections.

Facebook's former chief security officer, Alex Stamos, who left the firm in August, said it may be too late to protect the integrity of the upcoming elections.

In an August post he wrote for the Law-fare blog he blamed a host of factors for the ongoing issues, including "the fundamental flaws in the collective American reaction."

Others point the finger at the Facebook boardroom.

"It is a deficiency in governance and board oversight," maintains Julie Goodridge, CEO, NorthStar Asset Management, which holds $5.5 million worth of Facebook stock. "What's going on at Facebook and what's about to go on at Facebook is because the board didn't...