Hashtag capitalism: An introduction

Abstract

This article aims to introduce the phenomenon of ‘hashtag capitalism’ – that is, the ability of shareholders, employees, customers and even members of society to leverage social media in a way that influences corporate behaviour. While it is a positive development that, via social media, members of society are engaging with and influencing corporate decision-making, there are also concerns that some individuals are able to influence the financial decisions and opinions of others, and that such individuals might need to be held accountable. The article describes the different developments that have created the perfect storm to give rise to hashtag capitalism and argues that there is an urgent need for corporate law and regulation to reckon with this phenomenon, to ensure that we are able to retain the benefits while effectively addressing the risks involved.

More young people are engaging with companies as shareholders, stakeholders (like customers and employees) or simply as members of society, using different social media platforms like X (formerly Twitter), TikTok, Instagram and Reddit groups. Social media has allowed individuals to act collectively on various issues and, in some cases, such collectivisation has resulted in social movements (like #MeToo and #BLM) with international ramifications. Additionally, some individuals influence large sections of the online crowd to invest in certain companies and have come to be known as ‘finfluencers’ (a portmanteau word formed by combining sounds and meanings of ‘financial’ and ‘influencer’). Since the currency by which finfluencers gain popularity is not always the quality of content, but rather an appeal to emotions and the simplification of issues, there may be areas of accountability that need to be addressed. The optimistic part of this story is that finfluencers are improving financial literacy, and overall seem to contribute to the goal of financial inclusion. Thus, social media has allowed people to participate in the corporate world, by coming together as investors and using that to effect change on environmental, social and governance (ESG)issues, or by coming together as customers or employees and bringing about policy change on relevant issues, or by acting as individuals and commenting on and reacting to issues in the corporate world that have social implications. Members of society have actively given themselves a voice in the corporate world, irrespective of how the law understands the corporation and its governance. Taken together, I have termed this phenomenon as hashtag capitalism.

Despite these developments, corporate regulation has not recognised the new realities of social media as a site for engagement for corporations and society, and of young people (Millennials and Gen Z) who are digital natives and hence very comfortable with sharing their views online and taking advice from online actors. A key tool in corporate regulation is soft law or ‘comply or explain’ rules which simply require companies to disclose whether they are in compliance with a certain rule or if not, explain why not. In Australia, these rules are found in the ASX’s corporate governance principles. ¹ In the United Kingdom (UK), they can be found in the Corporate Governance Code. ² This type of regulation relies upon engagement by shareholders with companies based on their corporate governance disclosures. However, in the current environment where corporations are responding to online engagement, whether or not those engaging are shareholders, there is a need to rethink the audience for such disclosures. Since ‘comply or explain’ rules are used to tackle significant issues like climate change, cyber security, AI, and diversity, rethinking corporate regulation in the social media age could be an opportunity to effectively tackle some of the big problems of today.

This article will argue that corporate law should reckon with hashtag capitalism – not only to ensure that finfluencers are accountable but also to tailor comply or explain rules and other corporate regulation to this context. In the second part of this article, hashtag capitalism will be examined further by detailing some of the key events within the phenomenon. The article will then conclude with some preliminary ideas about how corporate law should reckon with hashtag capitalism.

Hashtag capitalism: The story so far

Corporate law and regulation across jurisdictions are informed by the understanding that, because shareholders of large corporations are dispersed, it is difficult for them to act collectively. This is known as the collective action problem. However, institutional investors, such as pension funds and hedge funds, complicated this logic because these institutions are managed and invested on behalf of a number of people. In response to the rise of institutional investors, corporate law scholars and policy discussions have focused on solutions like stewardship codes which provide guidelines on how institutional investors should actively engage with companies or, in other words, act as stewards of the company. ³ However, individual shareholders, known as retail investors (to distinguish them from institutional investors) still could not organise themselves together and act collectively.

The advent of social media has facilitated coordination between retail investors at almost no cost. Retail investors with small shareholdings have traditionally not exercised the voting rights attached to their shares. In economic terms, this is because of rational apathy. In other words, the small stake they held did not justify expending resources to inform themselves of the issues being voted on. ⁴ This logic of rational apathy has become moot in current times, not only because of social media, but also because younger generations are actively informing themselves on social and political issues and view their participation in corporations as an extension of this. ⁵ This has transformed the role of shareholders as traditionally understood in corporate law.

Social media activism may engage both shareholders and non-shareholders. In some cases, online discussions can bring new individuals into the fold when they decide to buy shares in a certain company based on the company’s stance on some social or political issue. Even if they don’t become shareholders, their activism on social media carries weight. This is because corporations are taking such social media activism seriously and responding.

As noted earlier, corporate regulation employs soft law or ‘comply or explain rules’ which rely on shareholders to engage with companies about their level of compliance with the relevant rules. However, in the current environment where corporations are responding to online engagement (rather than just shareholder engagement), there is a need to rethink the audience for such disclosures. ⁶

While social media activism has many positives, a concerning issue is that of misinformation and over-simplification of issues on social media. The latter concerns have been explored in other areas such as constitutional law, ⁷ but are under-explored in corporate law and corporate governance literature although there has been some regulatory interest in recent months. For instance, in Australia, the market regulator, the Australian Securities & Investments Commission (ASIC) has issued an information sheet noting that, when finfluencers ‘discuss financial products and services online or promote affiliate links’, they might need to hold an Australian Financial Services (AFS) licence depending on the exact nature of the discussion, and they need to ensure that the information they provide is accurate. ⁸

In recent times, corporate law scholarship has largely focused on the impact of social media on shareholder engagement with company management. Protests at shareholder meetings have historically drawn media attention to issues. Such protests began to be coordinated on social media ⁹ and, during the COVID-19 pandemic, we saw something more. Investors used social media to seek financial gains thus becoming a market force that could not be ignored. This movement was catalysed by the emergence, in the United States (US), of apps like Robinhood which gamified investment at a time when people were working from home and in need of both entertainment and a feeling of community bonding. Organising online allowed people, especially Millennial and Gen Z investors, to connect with each other and find common ground. Many investors seemed to be motivated by a sense of revenge against large corporations and traditional financial institutions. ¹⁰

The social media impact on shareholder profile and behaviour came into sharp focus when young (Millennial and Gen Z) retail investors coordinated the buying of shares in the US video game retailer GameStop, based on social media posts and emotional support for a company which they had fond memories of, despite the company having poor fundamentals. One scholar explained this ‘frenzy’ as ‘a product of the times – investors confined by the pandemic lockdown and flush with stimulus checks seeking a form of engagement and entertainment.’ ¹¹ Yet, the GameStop episode was a significant moment in corporate law. It drew attention to the fact that retail investor participation had the potential to engage ‘a population that has not traditionally participated in the capital markets and offer[s] them the opportunity to realize the economic rewards of such participation’, and that the current generation of retail investors, being interested in pro-social issues, could mean that retail investors may push companies to act in the interests of society. ¹² Although Australia did not have a ‘GameStop frenzy’ type event, a 2023 survey of Australian investors noted that more young investors have entered the market and social media is an emerging source of information for them. ¹³ Further, they are more inclined to emphasise ESG issues while making investing decisions. ¹⁴ Thus, the lessons of the GameStop movement are pertinent in Australia as well. While we are now outside the artificial conditions created by the pandemic, the reality of retail investors – their active participation and collectivising on social media, and their pro-social views – remain.

Perhaps responding to this moment where younger generations are actively becoming involved in the stock market, finfluencers are sharing content related to investment and other financial topics on various social media platforms. These individuals are not simply interested in providing financial assessments based on market fundamentals. Instead, they are also motivated by the need to provide entertaining content to increase their follower count. ¹⁵ While some companies have sought to co-opt these finfluencers as a marketing tool, such relationships between finfluencer and company are not always public. All this has meant that finfluencers have come under regulatory scrutiny in jurisdictions like Australia, UK, the European Union and India. ¹⁶ Most of these jurisdictions are seeking to ensure that finfluencers are registered as financial advisers and that any relationships between finfluencers and companies be disclosed. In Australia, after initial information dissemination about the application of the Corporations Act 2001 to finfluencers, ASIC has started to take action against those who did not comply. ¹⁷ An extreme example is that of Tyson Robert Scholz who called himself ‘ASX Wolf’. He was found to have operated without an AFS licence, was barred by the Federal Court of Australia from providing financial services and was required to pay legal costs in that case. Having failed to pay the costs, Scholz was, at the time of writing this article, facing bankruptcy proceedings. ¹⁸ Yet, there are many long-term benefits of finfluencers including increased participation of individual shareholders, and bringing financial literacy to different sections of society. ¹⁹ While this is a nascent area of research, the few scholars working on this issue focus on the way forward in terms of regulating finfluencers, while preserving the benefits they bring in the wider context of hashtag capitalism as described in this article. ²⁰

A look at the wider context of these developments suggests that the story goes beyond shareholders. Customers, non-governmental organisations, and society more broadly have boycotted company projects in the past – Nestlé is a well-known example ²¹ – but now, social media has allowed such movements to be turbocharged. Social media powered movements like #MeToo and #BLM, which initially began in the US and then spread to other jurisdictions including Australia, showed us that social media could also be channelled by non-shareholders and coopted by companies looking to ride the zeitgeist. As part of both these movements, employees of companies raised concerns about sexual harassment, discrimination and corporate culture more generally. Other stakeholders and members of the public joined these online movements and amplified them ²² to the extent that many merger agreements in the US now include representations and warranties about issues of sexual harassment, and top companies have voluntarily introduced a number of diversity measures. ²³ An important point to note here is that a social media user’s impact is based on their online activities rather than their status as a shareholder or stakeholder in a particular company. This upends the existing paradigm of power allocation in the corporation. Outside corporate law, it has been noted that the coming together of people on social media to discuss and react to major events can be viewed as a coping strategy and can also demonstrate how people make sense of the law. At the same time, such emotional engagement online can mean that the feelings may be contagious. Through ‘narrativised emotional comments on social media … legal meaning can be constituted, transformed, and propagated.’ ²⁴

For their part, corporations have taken seriously social media activism by both shareholders and non-shareholders and have responded to calls to act on socio-political issues. Some scholars have called for a careful consideration of this phenomenon saying that it could lead to corporations becoming super-citizens. ²⁵ Further, although corporations could ensure speedy solutions to issues, because of social media activism there are also risks of these solutions being ‘undemocratic as it lacks accountability and representativeness’, ‘divisive and anti-pluralistic’, and based on the opportunistic interests of corporations. ²⁶

Conclusions: Implications for corporate law

Corporate law will have to reckon with hashtag capitalism in multiple ways. As discussed, regulators in various jurisdictions seem to be responding to the rise of finfluencers by seeking to regulate them as if they were financial advisers. However, the issue goes beyond finfluencers. At a time when social media interactions with corporations can elicit change in corporate behaviour, and any individual can participate in such social media interaction, it will be important to rethink how corporate law understands corporate governance and the roles of various stakeholders in influencing governance decisions.

At present, corporate law across jurisdictions provides directors and officers with enough discretion to balance the interests of different stakeholders, as long as the company is financially viable. Although this is often framed as shareholder interests needing to be prioritised, directors are able to justify decisions that prioritise the interests of different stakeholders and of society more broadly so long as it is in the long-term interests of the corporation. Thus, corporate management is entitled to consider stakeholder views, and social media seems to be facilitating a feedback loop through which such views are heard. Recently, in the Cassimatis case, Edelman J noted that, in the calculus of risks and benefits being considered before a decision is made by directors, it is also relevant to consider non-financial factors like reputation of the company. ²⁷ Since a social media storm impacts corporate reputation, it will certainly be relevant for corporate decision-making. At the same time, it may be necessary to take in different views on social media and outside social media, and to consider the importance of the issues at stake for the company.

Further, rather than only relying on institutional investors, comply or explain rules can also channel the social media crowd when they address issues that are of interest to Millennials and Gen Zs. It is also pertinent to note here that information about the company’s compliance with such rules can be disseminated informally by employees as we saw in the context of #MeToo and #BLM where employees were able to post about their employers not following through on the public promises they made. Thus, it is not only formal reporting mechanisms that are relied on. Finally, corporate regulators should be alert to online activism incentivising greenwashing in ways that the social media crowd will not suspect – for instance, a CEO with an active presence on social media may develop a following which they can then exploit. The market regulator must monitor this, just as ASIC has monitored discussions of finfluencers on social media, provided guidance about actions that it might take and subsequently taken action as discussed above.

Finally, these questions also require us to rethink the theoretical foundations of corporate governance and corporate law. While different theories provide a perspective on what a corporation is and how it is governed and regulated, none of them focus on the fact that corporate management is making decisions with input from shareholders, stakeholders and members of society. It is beyond the scope of this article to provide a detailed analysis of how hashtag capitalism is complicating existing theories underpinning our conception of the corporation and corporate regulation. However, future work by the author will consider this question.

This article, by introducing the phenomenon as one that needs immediate attention within corporate law, has sought to identify and inform various audiences about hashtag capitalism and briefly consider its implications for corporate law and corporate regulation. It is anticipated that this will be a new sub-field of research within corporate law in the coming years.