The principle of collective bargaining is a well-established one in the struggle between capital and labour; the more united the workers, the likelier they'll get that pay rise – in theory. But what about shareholders acting in unison to influence company behaviour?
It's a modern capitalist twist that lies at the heart of the environmental, social and governance (ESG) debate and one amplified by the terrible events in New Zealand last week, creating an important test case for the industry – and one worth tracking.
In the aftermath of the live footage broadcast on social media during the Christchurch terror attack, major institutional investors, led by the NZ Super Fund, are calling for global collective action to force change.
But one technology industry observer told AsianInvestor that while greater engagement with social media companies is worthwhile, the extent of investors’ influence is limited.
On Wednesday, leading New Zealand investors including NZ Super Fund, Accident Compensation Corporation, Government Superannuation Fund Authority, National Provident Fund and Kiwi Wealth, with more than NZ$90 billion ($62 billion) in assets under management, collectively called for Facebook, Google and Twitter to take action after the live streaming and sharing on social media of the murder of 50 people.
“These companies’ social licence to operate has been severely damaged,” NZ Super's chief executive, Matt Whineray, said. “We will be calling on Facebook, Google and Twitter to take more responsibility for what is published on their platforms. An urgent remedy to this problem is required.”
That followed a statement by New Zealand Prime Minister Jacinda Ardern that social media companies were “publishers, not just postmen”.
Despite deleting 1.5 million uploads of the Christchurch attack footage in the hours after the atrocity, Facebook has faced criticism that it was too slow to react and should have the means to block such footage altogether.
The NZ asset owners are calling on global investors to join a collective action that will give the initiative the most impact. “We are in the process of contacting other global investors, seeking their support for this initiative,” Whineray said.
AsianInvestor contacted several asset owners around Asia Pacific, but none were ready to comment on the matter at this stage.
For investors looking to put pressure on these companies through shareholder engagement, the issue is complicated by the use of dual-class share structures, which enable founding entrepreneurs to retain a higher level of control of a company while raising capital from public markets. This issue first came to prominence in Asia when the Hong Kong Exchange refused to allow Alibaba to list in Hong Kong with a dual-share class structure.
Anne-Maree O’Connor, head of responsible investment at NZ Super, acknowledges that the dual-class structure is a challenge for minority shareholders but holds out some hope that the negative media coverage will raise wider concerns over dual-class shares.
“For the companies, it is the whole risk from a large segment of stakeholders turning negative that impacts their business model – which we sum up as social licence to operate,” O’Connor told AsianInvestor.
She added that NZ Super would address it “in the same way we need to with other significant issues such as climate change and modern slavery – across public, private and civil society/consumer sectors."
“In this situation, we want to use the levers as fully as possible to ensure the company knows that as shareowners, we expect change,” she said. “Complacency is not an option.”
NZ Super is willing to go further though. “We are optimistic that we will be able to bring other major investors on board and note that combined pressure from a large number of investors has a greater chance of success. Furthermore, engaging publically (NZ Super doesn’t usually do engagement in the public eye) has added influence.”
By speaking to companies with a unified voice, O’Connor said investors can more effectively communicate their concerns to corporate management. “The result is typically a more informed and constructive dialogue,” she said.
That practice has worked well for other activist pension funds, such as Norway’s $1 trillion Government Pension Fund Global. The fund regularly and publicly details the reasons for its company exclusions, for reasons varying from “unacceptable risk that the company is responsible for serious or systematic human rights violations” to “the risk of particularly serious violations of fundamental ethical norms”.
Iaroslav Kudritskiy, chief operating officer at Hong Kong-based artificial intelligence (AI) specialist Rocketbots, told AsianInvestor that where GPFG identifies companies that are experiencing moral hazard, “they typically spend a year or two lobbying other shareholders, in order to discourage this kind of activity,” with the threat of their investment support being withdrawn.
But according to Kudritskiy, “That is the only power they really have.”
From the point of view of Facebook and other social media platforms, Kudritskiy said the sheer volume of malicious content in the case of Christchurch was just one problem. Eliminating malicious content altogether is even more problematic.
“The real challenge lies in determining what a person’s intention is. It’s very hard for them to automatically separate someone who is just joking from someone with true malicious intent. It’s very hard to draw the line.”
Kudritskiy said in his business, which uses AI on chat applications, it is sometimes hard to gauge a person’s intent, particularly where people don’t have very good English or where their grammar is poor.
“That situation is complicated for Facebook in that they have to deal with many different languages," he said.
“Our AI works inside a chat, so in a way it’s easier for us to determine context based on the previous messages. In Facebook’s case, inside a more public arena, a conversation is not necessarily linear, so it’s definitely more difficult to determine the context with any accuracy.”
Nonetheless, Kudritskiy believes there is more that Facebook could do, “but there is no systematic or structural fix. It would have to be done on a case by case basis.”