Apple, Facebook and the dawning of a new age in capitalism


Apple, Facebook and the dawning of a new age in capitalism - 14th January 2018

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Facebook founder Mark Zuckerberg has proved adept at anticipating and dealing with mortal challenges facing the social network. Bloomberg

 

by Jonathan Shapiro

Apple has been described as the "greatest cash machine in history".

But in its march towards a $US1 trillion ($1.26 trillion) market cap, the company has at times been a victim of its own success.

In 2013 activist hedge fund managers Carl Icahn and David Einhorn successfully pushed for Apple to return some of its $US100 billion cash pile to investors – a recognition that it had reached the end of its innovative phase.

Now Apple is the subject of an altogether different activist campaign, one that could elevate the responsible investment movement beyond those concerned about climate change to those fearful about the mental wellbeing of their children.

This week, hard-nosed New York activist fund Jana Partners and the $US220 billion institution Californian State Teachers Retirement System (Calsters) penned a letter to the Apple board at 1 Infinite Loop, Cupertino.

In five pages they outlined their concerns about the unintentional negative consequences of smartphone use, particularly among kids, citing several academic research papers.

Depression and anxiety was on the rise, while attention spans and empathy were falling. Parents and teachers were worried, and as holders of $2 billion of stock they wanted Apple to do something about it.

In urging Apple to act on their concerns, Jana and Calsters took aim at companies whose practices made "short-term sense" but were "undermining their own long-term viability".

'More meaningful interactions'

If Facebook founder Mark Zuckerberg is to be taken at face value, that sentiment was behind his Friday bombshell.

The social network said it would change its algorithms so that user feeds were populated more with posts from friends and family than news, entertainment and brand engagement.

The changes would promote "more meaningful interactions", Zuckerberg said, and were about his "legacy" which he had become more concerned about since his two daughters were born.

By emphasising content generated by family and friends, rather than news (real, fake or otherwise), clickbait and content created to go viral, the changes would have a positive impact on the wellbeing of its users, the company said.

For Facebook, and Google, which are advertising companies – their incentive is simple, keep users online for as long as possible. But the changes would reduce potentially addictive content.

Facebook's share price stumbled on the announcement, declining almost 5 per cent, as the market determined the impact on revenues would be more negative than positive.

Cynics suggested the decision was a pre-emptive one to avoid oversight, after so-called "fake news" proliferated on the platform and profoundly influenced voters around the world.

Commendable record

While users will be subjected to less "fake news", they'll also receive less news, so the impact on the media industry and broader society as a whole is not clear.

Most of us already know it, but the extent to which Zuckerberg can play God is mildly terrifying. If tweaking a few lines of code can alter the welfare of two billion people, maybe it's time shareholders had a duty to look beyond quarterly revenue beats.

It should be noted that Zuckerberg has a commendable record in making critical long-term decisions to protect shareholder wealth, such as overseeing the transition to mobile and buying Instagram.

Shareholders, however, may not be all that powerful. A year ago, The Australian Financial Review interviewed the chief executive of US mutual fund T Rowe Price, Bill Stromberg, who expressed his displeasure with the shareholder structures of tech firms coming to market.

But the fund manager moved quickly to clear up any suggestions they would contest the decision by Snap's founders to give themselves disproportionate rights ahead of its initial public offering.

Social licence

It remains to be seen if Jana and Calsters will enforce desired change at Apple or if Facebook's algorithm tweaks will make the world a better place and enhance its long-term value.

But it's a clear sign that these tech giants' social licence to operate is under review.

The changes may also spark a greater appreciation of environmental, social and governance investing frameworks and the concept of universal ownership. The push by large institutions to embrace ethical investing is being influenced by their younger investors.

High-powered hedge fund managers and chief investment officers that may not have felt the immediate urge to divest their coal stocks to save the planet, or push for equal representation on boards because the impact on society was too gradual to notice.

But as more of them deal with teenagers at the dinner table, depressed and disconnected from reality, they too may rethink their priorities as owners of these businesses.

(The Australian Financial Review)