I recently had the privilege of interviewing Jeff Orlowski, the director of the documentary The Social Dilemma, which tracks the fall of our information age to the disinformation age and examines the role of social media companies in eroding our social fabric. The situation is akin to a horror movie but one where we have the power to choose the ending.
The business model of social media companies seeks clicks and eyeball time by keeping people angry, anxious, and emotionally piqued. It also relies on vast data accumulation and a loss of consumer privacy at great social, political, and long-term economic expense. This is accelerated by the irresponsible use of artificial intelligence (AI), which can lead to racial profiling, discrimination, and censorship. Alternative business models that do not optimize for addiction are nowhere near as profitable so as investors, we find ourselves compromised.
There are several long-range ESG risks facing social media companies that could blow up in the long-term in the form of new regulation, turning off users, and losing their social license to operate. However, it’s hard to hold these companies accountable using the usual tool of shareholder proposals given that many of the social media giants' insiders control a sizable amount of shares and/or a dual class share structures. Notwithstanding, there are a number of innovative shareholder advocacy campaigns that are worth following.
The Nathan Cummings Foundation is pioneering a new resolution at Omnicom, with the help of the non-profit OpenMic, asking the advertising giant to investigate the placement of digital ads on sites that spread misinformation: Did money spent by advertisers inadvertently help spread disinformation, further white supremacist activity, or promote voter suppression? The aim is to get major advertisers to acknowledge the passive support they give these platforms and act to end it. A similar resolution has been filed at Home Depot, one of the largest advertisers on Facebook in the US.
Another group, Arjuna Capital, filed proposals at Google, Facebook, and Twitter asking them to establish director level oversight and expertise on civil and human rights to challenge Big Tech’s ongoing negligence around enabling racism and discrimination online and threatening human rights worldwide.
The nonprofit As You Sow’s shareholder proposal asks Facebook to permanently adopt the algorithm controls it used to deprioritize extremist postings in the run-up to the 2020 election.
And Boston Trust Walden has been engaging with social media companies for years asking for more comprehensive disclosure around lobbying spending and payments via third parties.
The Investor Alliance for Human Rights (IAHR), an initiative of the Interfaith Center on Corporate Responsibility (ICCR) is launching a formal collaborative engagement around user rights with data from the Ranking Digital Rights Index.
Regulators around the world are also starting to wake up, especially after the events at the U.S Capitol on January 6th. At least in this country, however, politicians on both sides of the aisle are beholden to sizable political donations and the huge presence of industry lobbyists. As self-regulation has clearly failed, effective anti-trust enforcement is a step towards a solution as a more competitive marketplace may force companies to improve their behavior.
The pressure seems to be mounting on these companies to change their business models. So far they have been able to shrug it off, but how long can that continue? And how long can we investors ignore this behavior? Can values aligned investors once again be first movers and show markets that these companies have some very significant material risks that are not currently being priced in?
Currently most investment managers, especially those that rely on third party ESG ratings rather than true ESG integration, have not put the processes in place to consider these issues. Ratings agencies are behind on assessing companies’ direct impacts on misinformation, harmful speech, and civic engagement, and there is the additional challenge of capturing those concerns within the “ratings” paradigm.
While shareholder engagement can certainly help, investors can also have an impact by helping to change the narrative and keep up media pressure. Values-aligned investors need to find new ways to clearly articulate and hold companies accountable for norms violations and harmful business models. We need to choose between impacting true business model change or divestment.
This is a similar playbook that has been successful in fossil fuel engagement/divestment campaigns especially with regulators being slow to catch up to the reality of long-term risks. For now, awareness of systemic risk in the social media space is at a much earlier stage than the fossil fuel conversation, and it is hard to convince portfolio managers and analysts that the risks to business models are material in the short term when there still seems to be so much potential for growth and investment returns, no matter how toxic. A very inconvenient truth indeed – but one worth highlighting!
- Sonia Kowal, President, Zevin Asset Management