Capitalism Reimagined | September 14, 2021

Disinformation poses systemic risks – so universal owners are pressing media companies to renounce it

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, Sept. 14 – Talk about negative externalities. 

False information intended to mislead viewers on climate, COVID-19, racial justice and other issues may drive ratings and clicks, but it is costing lives and destroying trillions of dollars of economic value. 

Concerned that the spread of disinformation represents a systemic risk to the rest of their portfolio, a group of diversified investors are initiating a campaign to push media companies to improve the accuracy of news.

The campaign is rallying shareholders for a vote at the November annual meeting of Fox Corp., the parent of Fox News. The campaign, led by advocacy group The Shareholder Commons, has introduced shareholder resolutions to ask Fox and other media companies to enshrine as their corporate purpose the provision of an “accurate understanding of current events through the exercise of journalistic integrity.”

“We’re trying to solve for an underlying problem. That is: spreading bad information pays,” said Sara Murphy of The Shareholder Commons on an Agents of Impact call on Tuesday where she announced the campaign. Spreading misinformation, she says, “is actually a reasonably good strategy to increase revenues. But it is not good for the rest of your portfolio.”

To do so, the resolutions propose to convert media companies to public benefit corporations, a corporate structure available in 38 states that legally allows companies to commit itself to the wellbeing of other stakeholders as well as shareholders and to balance the pursuit of profit with commitments to the public good. 

More than a dozen publicly traded companies now identify as public benefit corps, which must define and report on a corporate “purpose.” In January, Veeva Systems became the first publicly traded company to convert to a public benefit corporation. 

Beta stewardship

If it seems unlikely that shareholders at Fox will approve the proposal in November, that’s because they probably won’t. The Murdoch family, after all, owns more than 39% of the shares. Instead, the target of the campaign is the investors themselves. 

To maximize portfolio value, “investors should be holding the companies in their portfolios accountable to their systems-level impact,” says Murphy. Increasingly, universal owners – the huge pension, sovereign wealth and insurance funds that are so broadly invested that they effectively “own the market” – are pursuing more active ‘stewardship’ to mitigate systemic risks to the economic system as a whole.

The emerging doctrine of universal ownership also is spurring smaller investors with diversified 401(k) and other accounts to try to mitigate negative impacts. In practice, investors can endorse and enforce industry-level “guardrails” to force compliance across an entire industry as well as by individual companies.

Until now, most investors have largely ignored such systemic beta, the effect on their portfolios of the health of economic, social and ecological systems as a whole. Attempts to drive outperformance, or alpha, have instead focused on supposedly superior securities selection.

“If you pursue alpha at the exclusion of everything else, you’re really not maximizing your beneficiaries’ value,” Murphy said. 

The Shareholder Commons put the “beta stewardship” strategy to work this spring. The organization worked with investors Amundi and Legal & General Investment Management to introduce shareholder proposals at YUM! Brands and McDonald’s with the goal of getting company management to disclose the systemic effects of the use of antibiotics in its supply chain. The proposal at YUM! Brands was withdrawn after the company agreed to produce a report. The proposal at McDonald’s garnered support from 12% of shareholders. 

Systemic risks

The strategy goes beyond the obvious enterprise risks at individual companies. The goal is to nudge collective action from diversified investors to take on disinformation at the industry level, and reduce risk to the whole system. The strategy, The Shareholder Commons wrote in a newsletter shared in advance with ImpactAlpha, “reflects the reality that shareholders have broader interests than merely desiring that individual companies maximize their own returns.”

Sensationalized and incorrect information undermines public understanding of critical issues such as climate change, public health and democratic processes, says Murphy, and thus threatens the economy and diversified portfolios. Murphy says the campaign should appeal particularly to the growing number of investors that identify as impact, or ESG, investors. 

By not attending to the corporate behavior that externalizes costs on the rest of the market, she says, investors are actually violating their fiduciary duty.

“This is actually the best way to honor our fiduciary duties and to return value to our beneficiaries.”