News of Cambridge Analytica’s misappropriation of millions of Facebook users’ data preceded a decline in Facebook’s stock market capitalization of over $100 billion in March 2018. Another 100 billion plus decline in market value—a record-setting drop—came in July 2018 after Facebook’s quarterly earnings report reflected increasing costs and decreasing revenue growth.
These abrupt market reactions likely reflect investors’ deep concern over the company’s inadequate approach to governing content appearing on its platforms. As shareholders, we are concerned Facebook’s approach to content governance has been ad hoc and ineffectual, and poses continued risk to shareholder value.
“Investors are urging @facebook to disclose information on how it manages the risks posed by #fakenews, election interference, #hatespeech, #sexualharassment and #violence distributed over its platforms. @ArjunaCapital #ProxyPreview ”
For two years, Arjuna has been sounding an alarm at Facebook—a call which, initially, fell on deaf ears. In December 2016, our clients used the power of their share ownership to file a proposal at the social media giant asking its board to describe the impact that “fake news” on its platform has on the democratic process. When that proposal went to a vote in June 2017, it received little investor support. Recent revelations, however, underline the prescience of our concerns.
This year’s proposal, filed by Arjuna Capital and the New York State Common Retirement Fund asks the board to report on the more encompassing notion of “content governance.” That is, how Facebook is managing the risks posed by election interference, fake news, hate speech, sexual harassment and violence disseminated over its platforms.
Since September 2017, Congress has called Facebook to testify three times. Only then did we learn of the 87 million Americans whose data was compromised and the over 200 million Americans who viewed propaganda in the lead up to the 2016 presidential election. In February 2019, the Federal Trade Commission began negotiating a multi-billion dollar fine to settle an investigation into Facebook’s privacy practices.
But fines and regulatory risk are not investors’ only concern. In September 2018 testimony, Chief Operating Officer Sheryl Sandberg said, “Trust is the cornerstone of our business.” Yet trust appears seriously eroded. Pew Research found 44 percent of young Americans have deleted the Facebook app from their phones in the past year.
Proxy advisory firm Institutional Shareholder Services issued a report in March 2018 entitled “Trouble in Tech: a Crisis of Trust in Social Media,” outlining the material risks to Facebook’s business—the use of the “platform to influence major international political campaigns,” and the “eroded…level of trust among users, calling into question the company’s business model and its governance.”
In January 2018, U.K. Prime Minister Theresa May used her speech at Davos to tell the World Economic Forum that shareholders have a “vital role” to play in pressing the likes of Facebook to remove inappropriate content. She pointed to the example of Arjuna Capital and the New York State Common Retirement Fund, for filing shareholder resolutions asking Facebook and Twitter for details of “abuse that take[s] place on the companies’ platforms.” She underlined, “Investors can make a big difference here by ensuring trust and safety issues are being properly considered. And I urge them to do so.”
