Why social media needs active investors - part one

Social media is plagued with multiple, well-documented problems, particularly centring around online harm and misinformation. As a result, many investors may have qualms about owning stock in such companies, particularly if ESG (Environmental, Social and Governance) factors are important to how they choose to construct their portfolios.

However, investors can also have the power to hold social media businesses to account and influence them to change for the better – and this can be a more impactful approach than simply divesting.

This is the view of whistleblower Frances Haugen, who was once a Product Manager at Facebook. In 2021, she left the business and subsequently became a vocal critic of its parent company, Meta, and many of its competitors.

Fundamentally, Haugen argues that the social media giants are failing in their "duty of care" towards the public and that an "ecosystem of accountability" needs to grow up around the industry, in a similar way to more established industries, such as the automotive or energy sectors.

"We are making huge leaps of progress on the regulatory front," she says, citing the Digital Services Act in the EU and the UK's Online Safety Bill (which is currently on hold in the UK parliament), both of which seek to rein in the power of social media. "But in terms of pre-regulatory levers, one of the most important is investors. So I’m focusing on working with investors to set criteria for what makes responsible tech companies."

The challenges around social media

"If you're a publisher, and you're trying to figure out what kind of content you should put on Facebook, if you’re looking at the stats, you would put out angrier and angrier content."

One of the most fundamental problems with Facebook, Haugen argues, is that the content selected by its AI-powered algorithms to appear in people’s newsfeeds is biased towards maximising user interactions, or clicks. "That means content that gets more comments, 'likes' or shares are considered 'higher quality' content by the algorithm," she explains. "But what they’ve found is that the fastest path to a click is anger or hate. The stuff that gets most distribution now is polarising, divisive, angry content."

This, in turn, creates an incentive for people or organisations who are posting content to generate these reactions among their audiences. "People don't make money from having their content distributed on Facebook, they make money when the traffic comes back to their site," she says. "So if you’re a publisher, and you’re trying to figure out what kind of content you should put on Facebook, if you’re looking at the stats, you would put out angrier and angrier content."

There is also a lack of effective moderation to eliminate hate speech or the deliberate spreading of false information, Haugen claims. This is particularly a problem in non-English-language contexts.

"The English language version of Facebook is the cleanest, safest, most sanitised version of Facebook," she says. "All the problems you think are happening on Facebook – any of the discourse issues, any of the violence issues, all those things – you can assume it is substantially worse in any language other than English."

The reason for this, she claims, is that Meta (the owner of Facebook, Instagram and WhatsApp) is under greater scrutiny in the US than anywhere else, so it devotes most of its moderation budget to the English version. "In the case of misinformation, Facebook spent 87% of their operational budget in 2020 on English, even though only 8 to 9% of users spoke English," she says. "With hate speech, 57% to 59% of the budget went to English."

The result is that, in countries where Facebook is often the primary online destination and source of news, such as many developing nations, the posts most likely to be seen are ones that trigger strong reactions, regardless of the veracity or acceptability of their content. "And this is a problem that plays out right across social media," Haugen adds.

Despite the many ills Haugen sees in social media, investors simply walking away from such companies is not the answer, she maintains. "Some ESG funds have divested from Facebook," she says. "It’s one thing to do that. It's another to say: 'this is what good looks like, and we're going to reward good. Here are specific ways you could change.' There is a big opportunity in this area." Read part two of this article, where we explore how investors can make a difference.

For information purposes only. You should seek professional advice for your individual circumstances.