4 May 2021 / Editorial Panel Contribution

Investors must engage with social media companies

By Leon Kamhi, head of responsibility, International business of Federated Hermes

Federated Hermes' Leon Kamhi says don't let social media go the way of climate change in which delayed action leads to bad outcomes

Investors must engage with social media companies

There is no denying that social media has positively impacted society in ways that are profound and far-reaching. In particular, this revolutionisation of the way we communicate has allowed so many voices to be heard in a way that they have never been before, empowering people to champion the issues that matter most to them and, as such, has democratised the way that various subjects are brought to the fore of our collective narrative.

However, over the past few years, the many shortcomings of social media have become increasingly apparent.

This democratisation of the media industry has facilitated a rise in hate speech, discrimination, and violence incitement, as well as giving way to an era of fake news, all of which is, sadly, exacerbated by the way that these platforms serve their users more and more of the content they engage with the most.

The damaging effects of social media on mental health, particularly that of young people, has becoming increasingly apparently in recent years. And, of course, complex issues related to the ethics of data governance continue to persist.

Early action

In light of all these issues, as investors, we must get ahead on the challenges social media brings. As we have learned from our experience with issues related to climate change, taking action as early as possible is a crucial step in curbing the extent to which they are able to pervade, and engagement is a fundamental part of this process. There is some investor engagement activity happening already in this area, but it must be a priority for increased and more effective investor action today.

There needs to be a responsible approach for social media companies to decide what should and shouldn’t be allowed to be distributed on their platforms. This is not straightforward. International law prohibits the incitement to discrimination, hostility and violence. Hate speech that does not reach the threshold of incitement is not prohibited.

Hate speech is outlawed in the EU but it is protected in the US as part of the First Amendment. Nevertheless, it is absolutely critical that any rules governing who and what is posted on social media platforms are consistently applied and effectively manage disinformation and provocations which lead to violence and the breaking of local law. Companies, regulators, civil society and investors need to work this through together. There have to be better mechanisms to control what is and isn’t allowed to be posted in free societies.

There is significant polarisation in society today. As the Netflix docudrama ‘The Social Dilemma’ promoted by The Center of Humane Technology (CHT) pointed out, it can’t be right that if you google ‘climate change is…’ then ‘is a hoax’ or ‘fake’ comes up in certain localities as the first link you might click and ‘the greatest threat’ or ‘real’ in others. The platform then further adapts these to what it learns about your opinions. This serves to reinforce the echo chamber and polarisation. There is a clear social responsibility for such platforms if we are to staunch the disunity and indeed, the threat to democracy itself, which is growing in our society.

There are studies that suggest social media has directly led to an increase in mental health issues especially among the young. The pressure to look perfect. The speed with which a group can ‘cancel’ a member. The addiction. Again, there are no straightforward answers to this but social media companies need to work with others from psychologists to schools and groups such as CHT to reduce this risk and make social media a platform that supports our young as they develop and flourish as grounded human beings who respect themselves and others.

The implications of weak data privacy have been widely raised including at various US Senate hearings. It can’t be that through stealth an individual’s personal information is being sold to third parties or being used to influence elections. Customer profiling without consent of data subjects (individuals) is a violation of recital 71 of the EU General Data Protection Regulation (GDPR). There is no doubt that addressing this will directly impact the business model of social media companies so dependent on data generation, access and aggregation and hence their ability to monetise their platforms. However, if not addressed these companies will lose their social licence to operate.

Engaging with companies

With all of this in mind, therefore, it is of paramount importance that as investors we engage intensively with social media companies to support them in addressing these issues and others that might emerge. It is possible to directly engage as well as put forward targeted shareholder proposals at the AGM, which will give a voice to concerns held by minority interest shareholders.

However, the nature of these companies is not necessarily conducive to facilitating effective engagement. The sheer size of them, the depth of their societal ubiquity and the lack of competition diminishes incentive for them to evolve and adapt. The speed with which they develop their offerings and, again, the extent of their global reach means that regulation on both a national and international level simply cannot match their pace, which can be further compounded by their lobbying efforts. So much of what they do is genuinely unprecedented and therefore cannot be suitably governed by existing legislation, which means investors must look for their own ways to assess the ethical legitimacy of their business practices.

See also: – Rules of engagement: What constitutes best practice?

Their tendency to have grown rapidly from small start-ups into multi-national companies in such a short space of time, combined with the societal gravitas placed on tech CEOs, means that power is often concentrated around a small group of founders, typically with dual share structures and weak board independence. All these factors present challenges for investors but, ultimately, highlight just how critical it is that investors commit to engaging as much as possible in order to address these issues.

We cannot allow social media to go the way of climate change whereby delayed action leads to worsening outcomes. Not only does this approach stand to benefit the owners and executives of these companies and their long-term financial performance but, indeed, will serve society at large as well.

Leon Kamhi is head of responsibility at the International business of Federated Hermes and an ESG Clarity editorial panellist.

Part of the Bonhill Group.