Asset owners slate 15 proposals on issues including opaque algorithms and privacy rights, amid ongoing concerns over voting limits imposed by dual class share structures.
Members of the Investor Alliance for Human Rights (IAHR) have announced a series of proposals filed for the 2023 proxy of big tech companies, including Alphabet (Google), Amazon and Meta (Facebook).
“Big tech has been unchecked for a long time,” Anita Dorett, Director of the IAHR, an initiative by the Interfaith Centre on Corporate Responsibility, told ESG Investor. “They have been allowed to operate in a space without really any guardrails in place.
“Over the years, we’re seeing more information being made available about these issues, via whistle-blowers, research reports, civil society and community members – it’s pretty alarming.”
The 15 proposals raise a variety of human rights concerns at each company ranging from inadequate content moderation and the proliferation of hate speech to a lack of transparency and accountability due to the use of ‘black box’ algorithms.
“What is core to big tech companies’ operations is that they have social and commercial platforms, that require society at large to put information onto them,” said Dorett. “The whole issue is that they take personal data, exponential data, patterns of behaviour, and they commercialise it and monetise it.
“That is really core to their whole business model so human rights becomes a material risk to them, she said. “If legislation were passed ending targeted advertising it would significantly impact the profitability of big tech.”
According to research by Statista, Facebook’s business model relies heavily on ad revenues. In fact, around 98% of the social media giant’s global revenues were generating from advertising in 2020, with the remaining 2% derived from payments and other fees.
Limited voting rights
Investors also raised concerns that dual-class share structures present within big tech companies limit voting rights of shareholders.
“Many big tech companies, particularly Facebook and Alphabet (Google) have a dual class share structure that gives them outsized voting rights, which means that they do not have to consider the views of the other shareholders,” said Dorett.
Dual class share structures, therefore, need to be “sun-setted”, she said, referring to the phasing out of such structures after an initial post-listing period. “It always should be one share one vote – that is the whole idea of democratic ownership.”
Investors including NorthStar Asset Management, Mercy Investment Services, Harrington Investments, Trillium Asset Management, United Church of Canada Pension Plan and others, argue that taken together, the issues raised in the proposals reflect the power and influence big tech wields over society and spotlights the how a lack of oversight to mitigate potential harms raises risks for all stakeholders.
“If you want to engage on [human rights and social] issues, and big tech are not willing to come to the table for a discussion – at least not in a timely fashion – then you have to use other tools in your toolbox, which in this case is escalation through the filing of a number of shareholder resolutions,” said Dorett.
“We always start with dialogue,” she said. “In the absence of meaningful dialogue, [investors] don’t really have a choice.”
Big tech drags its feet
Asset owners have always been willing to use their leverage as shareholders to push for better leadership and governance commitments on human rights risk, said Dorett.
Prior to the pandemic, over 80 institutional investors with around US$10 trillion in assets under management (AUM) penned a letter to the board Alphabet, urging management to discuss human rights issues, including political participation, right to privacy, freedom of expression, health and non-discrimination.
The request for dialogue was denied.
In response, the group of institutional investors, which included UK-based Hermes, US-based Loring, Wolcott & Coolidge, Netherlands-based Robeco and Canada-based NEI Investments, alongside support from proxy advisers Glass Lewis and Institutional Shareholder Services (ISS), filed a shareholder resolution to establish a Human Rights Risk Oversight Committee.
Alphabet refused to comply, stating that establishment of such a committee “would result in a duplication of efforts with no incremental benefit to stockholders or any stakeholders”.
Since then, awareness among investors of human rights risks has only increased, says Dorett, adding that big tech remains reluctant to “come to the table”.
In 2022, companies faced a record number of shareholder resolutions on environmental and social issues, according to data from Morningstar. This year, several IAHR proposals call out the need for human rights due diligence more explicitly, particularly regarding the algorithms these companies use to target advertising to their users. These build on the alliance’s long-term focus on technology and human rights-related issues.
“We have a tech and human rights working group, which we have been running for four years,” said Dorett. “During those working group sessions, we spend time with investors to raise their awareness on issues around biometric surveillance, the use of algorithms, artificial intelligence etc.
“We bring data providers who review information and provide shareholders with digestible formats and benchmarks, such as ranking digital rights, as well as bringing in digital rights experts like Access Now and Privacy International.”
The use of such experts helps asset owners to break down each of these areas and the potential impact they can have on human rights and social issues, said Dorett. “That sophistication comes down to a very specific, proactive effort by investors which we help to coordinate by helping them understand the issues and understand the impacts.”
Dorett added that the meaningful research and data is on human rights-related risk is primarily coming from benchmark reports by non-profit organisations, noting that commercial ESG data providers, while useful, lack of the same depth in terms of engagement and data.
The IAHR’s membership is currently comprised of over 200 institutional investors, including asset management firms, trade union funds, public pension funds, foundations, endowments, faith-based organisations, and family funds. Its members represent a total of over US$12 trillion in AUM.