As big tech and media companies face growing concern about the power of their businesses, more questions about environmental, social and governance (ESG) issues are likely to be raised.
Social and governance issues deserve greater attention amid increasing regulatory scrutiny of industry giants.
ESG issues are attracting greater investor interest across industries today. Tech companies have a good reputation in terms of the environment.
And their products and services support technological advances that help give people better access to information, while fostering economic growth.
But many tech companies face significant social and governance risks. Mounting political pressure to regulate technology and media giants should compel investors to ask what these companies are doing to manage exposure.
The regulation of big technology companies, such as Google parent company Alphabet Inc. and Facebook, is widely seen as a US antitrust problem.
Antitrust laws are statutes developed by the government to protect consumers from predatory business practices by large, dominant companies. However, the US antitrust actions may face challenges because Alphabet and Facebook are not doing damage to consumers, in our view.
We think additional regulatory questions will be asked. For example, Google-owned YouTube has 2 billion monthly unique users globally, and the Facebook ecosystem (Facebook, Instagram, WhatsApp and Messenger) has amassed 2.2 billion daily users.
While the sheer scale of users allows both companies to benefit from a powerful network effect, it has also created unintended social consequences.
In addition, Facebook and Google's dominance over content distribution could clash with a long-standing US tradition to protect the plurality of opinions.
Today, the Federal Communications Commission enforces strict ownership restrictions over traditional media outlets to ensure that no single entity has too much influence over the 'media voices' in a given market.
There are also rules in place to prevent the merger of national broadcast networks. Given the massive scale of their audiences, YouTube and Facebook far exceed the reach of mainstream networks.
Moreover, in the US, traditional news and advertisement publishers are obligated to verify the authenticity of information in their publications, or face exposure to liability.
Google and Facebook do not face such liability today. Since they say they are not publishers, they are not responsible for editorial content.
Both companies consider their technologies to be platforms that connect users and publishers in an 'open internet' environment.
Free speech vs fake news
The thin line between 'free speech' and 'fake news' will continue to provoke discussion. With increasing evidence that misinformation through these platforms continues to stir controversy, regulators may ultimately be inclined to require media giants to censor content distributed on their sites, or platforms themselves may suffer reputational consequences as users question the authenticity of content.
Should companies become responsible for removing 'fake news' from their platforms, they would start to assume de facto responsibility for deciding what information makes it to the public.
This would transform them from platforms to publishers that influence public opinion. In our view, this role may lead to regulatory oversight and corporate responsibility that they have not faced before. It would also be extremely expensive.
As publishers, these companies would be forced to assume the same liability and responsibility for authenticity as any traditional media publisher.
Monitoring and authenticating user generated content would require huge amounts of capital and hurt profitability.
Artificial intelligence may help, but probably is not fully capable of the task yet; indeed, Facebook added 15,000 contract workers as content moderators to review content deemed harmful.
Investors should consider the potential business implications of these social risks when evaluating any company in their portfolio.
Tech owner power
Governance issues also warrant a closer look. Over the past 25 years, technology founders have increasingly negotiated for more power.
For example, Google's founders structured the company in a way that gave them outsized voting rights and the ability to retain control. Mark Zuckerberg owns just over a quarter of Facebook stock, but controls nearly 60% of shareholder votes.
In many recent internet and tech IPOs, dual-class shareholder structures and founder control has been the norm, leaving limited rights for public investors.
Of course, many founders and CEOs continue to play instrumental roles in shaping their companies' journey.
However, as tech founders wield more power and influence than ever, the accountability question is paramount. Independent boards, separating the CEO and chairman roles, and single share-class stock are strong corporate governance practices that have yet to be widely adopted in this industry.
Investors need to continue to press companies to move in this direction and hold directors accountable, in our view.
These are just some of the ESG risks that big tech and media may face in the coming years. As big tech companies continue to enjoy huge network benefits, we believe they must also live up to the social responsibility that comes with their immense power to shape public discourse - or their businesses will ultimately suffer.
Lei Qiu is a portfolio manager on the International Technology portfolio and a senior research analyst for Thematic & Sustainable Equities at AllianceBernstein
Dan Roarty is chief investment officer of thematic & sustainable equities at AllianceBernstein