Tech-platform pressure shows challenges of shareholder-first rejection

Tech-platform pressure shows challenges of shareholder-first rejection

Tech-platform pressure shows challenges of shareholder-first rejection

For years, companies like Amazon, Facebook, and Google have made their fortunes in no small part from third-party content creators or merchants on their platforms. For these companies, their status as internet middlemen has proven to be very convenient — and it’s not just from an operational standpoint.

“[T]he bulk of the content and products supplied for those platforms doesn’t come from the companies themselves,” noted the Wall Street Journal. “This has historically provided a nice defense when things go awry.”

Over the course of their monumental growth, the three companies have successfully sidestepped legal accountability for bad actors on their sites. As the Journal noted, they’ve been protected by Section 230 of the Communications Decency Act of 1996, which shields internet platforms from liability for what others post.

But now that the three companies generate over US$460 billion in annual revenue combined, expectations have shifted. The U.S. Federal Trade Commission recently issued its largest-ever privacy-related fine amounting to US$5 billion against Facebook; it has also just hit Google with a US$170-million judgment over how its YouTube operation was being used to collect data on children. A U.S. court has also ruled that a customer in Pennsylvania could sue Amazon over an allegedly unsafe product.

“Online consumers on established platforms reasonably expect to find goods and services that are both safe and as advertised—much as they would at big-box retailers,” the Journal said. “The ‘we are just a tech platform’ excuse is no longer cutting it.”

Pressure from consumers, regulators, and media investigations has driven Facebook to invest aggressively this year to increase safety on its platform. Google, in response to the FTC judgment, has made changes such as disabling comments and turning off data collection for children’s videos. Amazon will also have to step up its oversight efforts at some point; while it claims to have tools in place that last year alone blocked 3 billion listings from third-party merchants, a Wall Street Journal investigation turned up thousands of unsafe items still being sold on the site.

The expansion in responsibilities shouldered by tech firms mirrors a changing view of corporate purpose. The traditional dogma considering shareholder interests to be of paramount importance is shifting with the growing attention on ESG investing, as well as the U.S. Business Roundtable’s recent declaration against the shareholder-first model.

As critics have pointed out, considering the interests of multiple stakeholder groups leads to a delicate balancing act. In the case of the large tech platforms, it’s a question of who will end up shouldering the costs of increased safety in content, products, and user experience.

“Thus far, investments in added security have been largely borne by the platform companies. And while much of that expense will likely come from investors’ pockets, customers could get stuck with some of the bill.” the Journal observed. “Prepare for a margin squeeze at tech platform companies.”

 

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