Corporate Law is Driving the Negative Effects of Social Media

By | October 26, 2021

Facebook, Instagram, Twitter, and several other social media companies have once again fallen under public scrutiny. This time, Congress is investigating several social media platforms in connection with the January 6thinsurrection. Further, Facebook recently conducted its own research on Instagram users, and company documents acknowledge the app negatively impacts mental health. While researchers continue to study the negative effects social media has on our political system, as well as our mental health, social media corporations have no legal incentive to change. There has been much discussion over legal protections of social media corporations, such as Section 230. Instead, this article will discuss the corporate law aspects of social media.

Social Media’s Impact on Society

Studies show social media use correlates with an increase in mental illness. Studies find increased mental illnesses arise from user exposure to social media content, especially among adolescents. Users are exposed to content like curated photos that only depict versions of lives filled with fun and social inclusion. Most notably, teenage girls are bombarded with photoshopped images of other girls, all giving rise to a false sense of inadequacy. Researchers have related such social media behaviors to major depressive disorder. This content is blamed for a sudden increase in depression, anxiety, and self-harm, primarily because the only correlating, simultaneous factor in the studied groups was increased use of social media. Further, developing studies show social media is addictive, and such addiction increases unhealthy mood disorders.

Broadening the focus from individuals to society, another effect of social media use is political polarization. According to social psychologist and professor Jonathan Haidt, social media can undermine trust in institutions and fellow citizens. It allows harmful ideologies to build upon themselves as well as recruit members, and it opens the door for easy manipulation by nefarious agents. Social media effectively moves users into “informational bubbles,” otherwise known as echo chambers, and the bubbles are then filled with manipulative content. The combined results of mood disorders and political polarization from social media use creates a populace inflexible in their thinking, less willing to compromise, and thus less likely to solve social problems politically.

Even though social media corporations are aware of, and even acknowledge negative effects—corporate directors have very limited options for remedies due to corporate law. Corporate directors are expected to make decisions that help the company, not society—otherwise they could be sued by corporate stockholders.

Most social media corporations, including Facebook and Twitter, are governed by Delaware state law. Delaware General Corporate Law (DGCL) § 141 states that “[t]he business and affairs of a corporation organized under this chapter shall be managed by or under the direction of a board of directors[.]” This means that a corporation’s directors, not its stockholders, have exclusive responsibility for making the major decisions for the corporation.

A Word on Corporate Law

Generally, a corporation is managed by a board of directors, which controls the business affairs of the company. Directors owe fiduciary duties to the corporation and its stockholders, which requires directors to act in the best interestsof the corporation and its stockholders. Directors are subject to liability for a breach of the duty of loyalty. Indeed, a director may personally owe damages to the corporation and its stockholders for a breach. The threat of monetary penalties necessarily deters directors from making decisions that could have a negative impact on profits.

In contrast, there is no legal duty to make decisions in society’s best interests. While DGCL § 102 states a director can be liable for intentional misconduct or decisions that violate the law, a director may make decisions that harm society if such conduct is not prohibited by law. Current corporate law thus favors economic incentives over social wellbeing by enforcing duties for profit maximization but not for social wellbeing.

There are ways shareholders can change the direction of corporations, done through political processes such as voting for directors or shareholder activism. However, these methods are expensive, slow moving, and difficult. For instance, Facebook shareholders attempted to change the company’s direction only to be outvoted by Mark Zuckerberg. We have yet to see any directional change in social media corporations. 

Back to Social Media Corporations

Current literature has explored social media corporations’ responsibility for controlling the content on their platforms. For instance, Kate Klonick discusses Facebook’s content control adjustments in her article The Facebook Oversight Board. Over the past several years, Facebook has adjusted how users experience the social media platforms. However, these adjustments are not motivated by social wellbeing.

Klonick explains how Facebook employed an oversight board to control provocative content on the platform. This was a reaction to several content-related controversies on Facebook’s platform, such as removal of journalistic photographs, the 2016 U.S. election, “Brexit,” fake news allegations, and the data leak from Cambridge Analytica. Controversies and hate speech resulted in a public outcry, and governments got involved. This increased government attention; however, it did not result in any regulation or legislation, but merely pressured Facebook to change.

Facebook’s accountability in these controversies came from the duty to maximize profits for the corporation, not from the obligation to positively impact society. As Klonick points out, the public outcry and pressure from the media, governments, and society at large created market-based accountability. This means Facebook’s adjustment to content control was based on profits, Facebook’s corporate value, and its “long-term” viability. This type of self-regulation is unreliable.

Abby K. Wood and Ann M. Ravel argue social media regulation must come from the government, especially when considering fake news content. In Fool Me Once: Regulating “Fake News” and Other Online Advertising, they explain how content like political advertising and disinformation can undermine democratic values. Such content “sows doubt about institutions” and “distorts the information environment,” which results in misinformed voters. This is a result of echo chambers on social media platforms—a problem social media corporations fail to solve.

Wood and Ravel posit that social media corporations are unreliable self-regulators due to their profit motives. Even though platforms are proposing to solve the problem of online disinformation, such proposals appear to merely promote their profit interests, and solutions appear unlikely. Put simply, social media platforms make money from advertising, and disinformation headlines are refined to attract users’ attention. The increased advertising and inflated user counts increase their bottom line, and the harmful effects on an individual user are a secondary concern.

A Possible Solution

While authors of the current literature suggest that passing legislation will fix this problem, utilizing fiduciary duties is the most feasible solution. As Judith A.M. Scully puts it: “[i]f we fool ourselves into believing that legislation will solve our problems, we will face the disappointment of constant change due to the fluctuation of political will as the Legislature changes faces and ideologies.”

Fiduciary duties have expanded in the past, and been altered by the courts. Corporate law scholar David Millonhas long maintained that social welfare should be a corporate duty. A possible basis for this duty may be in existing fiduciary duties, particularly regarding the “best interests” of the corporation. By broadening “best interests” to include long-term effects on society, directors would have to consider how their business practices can maintain a healthy populace.

Reviewing paramount cases such as Shlensky v. Wrigley (1968), it is apparent courts hold the long-term value of a corporation to be an important basis of fiduciary duties. In Shlensky, a shareholder brought an action against the board of directors managing the Chicago Cubs baseball team. The board had decided not to install lights in the baseball stadium. The shareholder alleged the decision was not in the company’s “best interests,” because they could make more profits by holding games at night. Wrigley’s reasons for not installing lights included his view that baseball is a daytime sport, and the nighttime baseball games would cause the neighborhood around the stadium to deteriorate. The court held for the directors, discussing how a nice neighborhood will encourage patrons to attend games, and will keep the property value of the stadium from decreasing. Thus, it follows that the court determined the long-term value of a corporation to be an important basis of fiduciary duties.

Expanding this idea to society, this fiduciary duty could expand for social media corporations. Since corporations depend on a structured and thriving populace for customers, contributing to a healthy society certainly benefits corporations in the long run. Long-term corporation value can have a larger scope than the deterioration of local neighborhoods. By ensuring social welfare is maintained, directors can ensure the longevity of their corporations.


As social media use increases, and corporations remain dedicated to the current scope of profit maximization, social media problems will likely continue. Current literature overlooks how corporate law enables perpetuation of social media problems, and therefore overlooks the barriers to progress. Corporate directors are incentivized to grow profits, and currently that means increasing the use of social media, regardless of the societal problems it causes. I suggest an adjustment to the scope of “best interests” to include the long-term benefits of corporations contributing to a perpetual and prosperous society.

Troy Sims is Deputy Prosecuting Attorney at Spokane County. This post is adapted from his paper, “Social Media and the Need for Corporate Fiduciary Duties to Include Social Welfare” available on SSRN.

Leave a Reply

Your email address will not be published. Required fields are marked *