Year-on-year growth from technology sector leaders has been good for investors.
The larger, more successful tech brands have continued to consolidate their positions via a combination of aggressive growth strategies, taking on and generally circumventing governmental interference and buying or even occasionally crushing smaller or new entrant competitors.
There is now pretty much an oligopoly among the leading social media players, particularly as they buy and add other large players to their group brands across imagery, video, search, and social interactivity.
This had led to most investors having tech holdings in their portfolios as managers have come to rely on them for a pretty reliable source of both growth and income.
The pandemic lockdown and a massive shift to digital solutions have very publicly benefitted many of these leading companies reporting increased usage, subscribers, and members. I have read very bullish statements from the companies themselves and some fund managers.
But is it quite as attractive as it might be? As the global population has had to concentrate rather harder on their social restrictions and rely even more upon technology, they also have to consider which companies are worthy of their support.
The social and governance elements of ESG are rather correctly also being explored, even if unknowingly, by the public. Attitudes towards the issues of race, inclusion, gender, privacy, social mobility, and integrity of the operators of the solutions chosen are coming ever more into the spotlight. Nor is it just individual investors paying very close attention to the attitudes of the tech providers, it is some of the largest global brands.
They are very publicly shaming the tech giants they no longer believe act with integrity by withdrawing ad revenue as they seek to ensure the values demanded by their customers is reflected in the advertising choices they make. This may have the effect of further emboldening calls from consumer and civil rights towards the tech giants to make the changes they should.
Nor is it just external commercial pressures being experienced by the management of these businesses. At the largest of them all a virtual staff walkout during a leadership summit shows just how disenchanted many are becoming with lip service being paid to real social and governance issues.
The public, big-spending advertisers and even staff no longer appear willing to be meekly compliant with issues ranging from racism, promotion of hate speech, defamation, taxation, social and privacy issues.
A growing list of advertisers is reducing or even halting spending on social media, undermining the company’s sales outlook and therefore putting pressure on their revenues. Starbucks, Levi Strauss, Diageo and PepsiCo are all showing they are more than willing to deliver detrimental financial impact to highlight the need for tech companies to suppress posts that glorify violence, divide and disinform the public, while allowing racism and discrimination. Aviva has now also joined this movement following a recent announcement.
No single company could significantly dent growth of the larger players but concerted actions by global brands will see other brands seek to join their efforts, encouraged by their customers and staff. This will likely add real pressure for positive and far-reaching change that does not put commercial outcomes ahead of public concerns. This pressure when combined with a pandemic-fuelled economic slowdown could deliver a real and deepening threat to tech giants.
Social and governance
Although the leaders of the tech giants are currently stating publicly that they believe the advertising downturn is short-lived and more a consequence of the pandemic than social and governance awareness, this seems a little short-sighted.
We are undergoing massive social, environmental and demographic changes that will demand real and sustained changes be made. A reliance on a view of temporary impact or advertisers just falling back into line is unlikely to address the current desire for better.
Social media brands and publishers with an online presence that allow digital bullying, generate clickbait headlines and abuse private data, all the while nakedly flaunting their greed and disregard for societal and governmental imperatives, could suffer and hurt more than they may yet realise.
It is said that all empires decline and fall, and the current perfect storm may mean those fund managers who trumpet their ESG credentials will have to think much harder about their own investments in the tech empires. Just as consumer brands are actively considering their advertising spend and reducing the potential profits of the tech firms, so true ESG-compliant investment from managers may add to the problems of profitability as well as the issues of growth and income derived from their investment.
Much is made of the E in ESG, but it does seem that SG and now moving front and centre and really will need careful consideration by everyone in delivering financial planning and investment management to the public.
By Lee Robertson, CEO of Octo Members Group
This article first appeared in Money Marketing on 3 July 2020.