Many image conscious investment firms are selling or rethinking their Facebook Inc. shares as they grow discontent with the firm’s way of strengthening personal data protection and online safety after several scandals surfaced about the improper management of user’s information by Facebook.
Backing out from the world’s largest social media network is surely the strongest response from investors to apprehensions about Facebook’s treatment of user data.
Cambridge Analytica, the now shut down political data firm whose service was used by Donald Trump during the 2016 US election for ad targeting, were found guilty of harvesting data for 87 million Facebook users and is currently under probe in United States and Europe.
Facebook shares also fell in the first quarter of the year when media organizations began sharing the data breach news widely, and only recovered after founder and CEO Mark Zuckerberg appeared at the US Capitol in April to testify about the scandal. Although he did not answer questions as clearly as many expected and did not support state regulation of his website, therefore raising doubts over his willingness to eradicate its data mining policy.
On May 8, Adam Kanzer, vice president of Domini Funds decided to sell its 111,000 Facebook shares held in the Domini Impact Equity Fund, explaining “Facebook’s problems, we believe are founded on a lack of sufficient attention to consumer privacy and data security, compounded by inadequate governance.”
Prior to that, Calvert Research and Management, an Eaton Vance Corp unit also sold its share of the social media giant due to concerns over the negligence of the Silicon Valley-based company in protecting user data. In a statement released announcing the selling of Facebook shares, it said, “the company clearly violated users’ fundamental right to privacy,” which goes against the company’s investment principal, according to Emma Doner, appointed as Environmental, Social and Governance (ESG) analysts.
Facebook must be bracing themselves, hoping more would not follow suit. Joe Keefe, president of Pax World Funds, claimed that Facebook’s position in investment firms like Pax ESG Beta Dividend Funding will be surely revised after the recent controversies that “may very well affect the company’s scores and its eligibility for continued inclusion in those portfolios.”
Mark Zuckerberg owns a majority of Facebook’s voting power, but will have to answer investors at its annual meeting on May 31.
ESG funds only own a small percentage of Facebook shares, but their decision to sell their stakes can influence other major investors such as BlackRock Inc and Vanguard Corp to follow the same path, especially since they have been focusing on social issues in the past few years. These socially minded funds must be in a problematic situation since Facebook signed a vow to improve privacy protection in 2011 from the Federal Trade Commission, according to Martin Kremenstein, senior managing director at Nuveen.
However, not every ESG managers are willing to divest their shares in the social media giant. Lauren Compere of Boston Common Asset Management gave its support to the company, citing its strong growth and cash generation as main motives to maintain its association with the company. Additionally, its giving credit to Facebook for stepping up against government requests for users’ information.
Similarly, Julie Goodridge of NorthStar Asset Management, which owns 36,900 Facebook shares, called managers to keep their hold of the company shares but support upcoming proxy resolutions such as the one from her company which aims at giving all shares an equal vote, translating to reducing Zuckerberg’s power in the company.