Everyone seems to be talking about sustainability. No corporate or political statement is made without a lengthy commentary on it. When discussing the dimensions of sustainability, people often point to environmental, social and governance criteria (ESG). The Western industrialized countries are largely in agreement on matters of good corporate governance, and considerable progress has been made on environmental standards, for example concerning carbon emissions. Social aspects are a different matter; these things sound good, but they are currently only of peripheral interest to the investor community. With Facebook as an example (in the following, using the platform brand also as a synonym for Meta as new corporate brand), I will show that social media, for the most part, is not socially sustainable and should be viewed much as we view the oil industry or the destruction of rainforests. My purpose is not to vilify a business model, but I intend to show that there is an urgent need for social media to take on a different kind of social responsibility and to be regulated differently than it is today.

The business model

Facebook, for me, is simply an example of a certain business model. When it comes to ESG, I’m not thinking about the latest events at Facebook, such as the whistleblower affair, nor about data protection or the enormous amounts of energy the company and its users consume. Facebook’s business model is remarkably simple: People pay with a certain share of their available waking hours and with their attention and interactions on an IT platform, and their attention is sold in a very targeted way to advertisers. The value of the company rises as time and interactions increase. 
What keeps people on the platform as long as possible? Psychologically, the answer is no mystery – it’s rapid, impulsive interactions, posts that confirm what users already believe, and a great deal of emotion. What do you think happens when you unleash an algorithm on this “business challenge”? Right, the algorithm will push this psychologically correct course to ever greater extremes.

So what does this have to do with sustainability? Well, we’re dealing with a limited resource – whether it’s the waking hours of people who have access to the relevant media, or oil as an energy source. At the same time, we’re dealing with companies and business models that use these resources free of charge. The resources need to be obtained or extracted at a cost, for example by creating and operating a communication platform or developing a source of oil. However, an optimization model that is designed to achieve short-term maximum results damages both society and the planet.

The damage

The U.S. gun lobby NRA likes to argue that it’s not guns that kill, but people. It’s a brilliant rhetorical device, but monstrous in the way it ignores ethics, society and much more. Social media has acted in exactly the same way as this lobby for many years, and continues to do so today. Even in ancient times, people used to write (nonsensical) messages on walls. The problem with Facebook is that it makes the wall scrawlings of every idiot, conspiracy theorist, vaccine opponent, etc. visible to some 2.9 billion Facebook users, with practically no monitoring. It was for good reason that satirist Sacha Baron Cohen expressed concern in 2019 about the impact of Facebook, pointing out that “freedom of speech is not freedom of reach.“ In other words, not all of the nonsense that people are allowed to say has the right to be widely disseminated.

There is a broad consensus that the trend we are seeing is shaking the very foundations of our society. Do we seriously believe that without massive pressure and regulation, Facebook will abandon its monopolistic, worldwide exploitation of human impulses? After all, this is what created a supranational company with a market value of roughly one billion U.S. dollars.

The compensation

After the flowery language in Facebook’s annual report has faded away, it is useful to take a look at the company’s compensation system, which is at the heart of its culture and strategy. This is where we see what really counts and is truly important. And in some cases there’s no need for further arguments; these things speak for themselves. Facebook’s CEO receives 1 U.S. dollar total compensation from the company. Nevertheless, he is one of the richest people on earth. His extrinsic motivation can be found exclusively in his company’s share price.

The highest-paid directors after the CEO receive approximately $800,000 in base pay and between $700,000 and $950,000 in bonuses. It is alleged that ESG targets are reflected in these bonuses. The annual report specifically states that “… none of these priorities were assigned any specific weighting or dollar amount of the target bonus.” These directors also received between $20 million and $60 million in company shares. The portion of director compensation at Facebook that exclusively incentivizes the share price ranges between 91 and 97 percent. 

The company is monitored by non-executive directors, who also receive substantial share packages when they take office and then every year thereafter. This ensures that the relevant interests are aligned. Management is focused exclusively on growth. At any rate, ESG targets and social responsibility play no discernible role at Facebook. Should there be limits to growth for such business models? I certainly think so!

The investors

The list of institutional investors in Facebook reads like a who’s who of the investment world. Given their reconciliation guidelines and public statements, these investors should reject Facebook’s compensation system. But that is by no means happening. There are a number of reasons for this: 

  1. Two sets of standards are in place. Large IPOs and index heavyweights in the United States are always “carried along” in the major portfolios – with no regard for governance and ESG. 
  2. In Europe, in particular, people sing the praises of the ESG objectives, while the songbook is still being printed in the United States. 
  3. Institutional investors have a hard time dealing with company-specific and sector-specific ESG criteria. Experience and data are lacking. Standards are in place for the E and G dimensions, but little that is comparable for S. 

The bottom line

The exploitation of social resources by Facebook and the like is at least as dangerous, and as much of a threat to sustainable economic activity and the life of society, as coal mining, the oil industry and the destruction of the rain forest. If we take ESG seriously, in the sense of setting sustainability goals that are of material relevance to a company’s interests and recognizing that they are significant as well as complementary to financial objectives, or even equally important, then Facebook, with its compensation system, does not pass the test. 

The (EU) taxonomy of ESG needs to be significantly expanded to emphasize social considerations, and this definition should be included in the sustainability categories that require reporting. At Facebook’s next annual shareholder meeting, any investors who take their own reconciliation requirements and statements seriously should refuse to approve this compensation model. They should convince the Board to rethink it, in keeping with the admonishment “put your money where your mouth is.” Facebook’s current business model is anything but sustainable; it is sleazy.

Author Michael H. Kramarsch

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