Verizon shareholders to vote on child abuse report proposal

Mar 29, 2019
Call for assessment of company’s oversight, policies and practices

Verizon Communications shareholders will have the opportunity to vote on a proposal regarding online child pornography at the company’s AGM in May.

Specifically, Verizon’s proxy statement includes a proposal from CBIS via the Catholic United Investment Trust (CUIT) and four co-sponsors that, if approved, would urge the board to issue a report on the potential sexual exploitation of children through the company’s products and services, including a risk evaluation.

Such a report would, according to the proposal, assess whether the company’s oversight, policies and practices are sufficient to prevent material impacts to the company’s brand reputation, product demand or social license.

The proposal comes at a time when there is a rapidly growing interest among investors in human capital-management issues and companies’ impact on the communities in which they operate.

Verizon is a major internet service provider (ISP) and supplier of mobile communication devices and digital content online. The shareholders’ filing states that child sexual exploitation online, or child pornography, is a growing risk to children that is being exacerbated by online services and mobile technologies.

CBIS cites various data and documents in support of its proposal. For example, it points to the US Department of Justice’s 2016 National Strategy for Child Exploitation Prevention and Interdiction as stating that ‘mobile devices have fundamentally changed the way offenders can abuse children’ and ‘apps on these devices can be used to target, recruit or groom and coerce children’ or ‘stream video of child sexual abuse’ in real time.

The proposal materials also state that the Internet Watch Foundation has noted that 55 percent of child sex imagery reported to it in 2017 was of children aged 10 or younger, and that domain names showing children being sexually abused increased by 57 percent between 2016 and 2017. CBIS also notes that the US Congress last year passed legislation intended to better hold websites and ISPs legally accountable for facilitating sex trafficking on their platforms.

The proposal materials state that information and communications technology companies have many best practices, beyond parental controls, to combat child sex abuse material (CSAM), such as: creating digital tools to remove this material and offering such tools to peers, supporting public policy that better protects children online, corporate detection software that triggers alerts when CSAM has been searched for or downloaded, and child-protective practices over public WiFi.

‘By comparison, Verizon’s efforts appear minimal,’ the proposal materials state, although CBIS acknowledges that Verizon’s terms of use prohibit CSAM, its user agreements instruct how to report such material and the company has improved some practices to block CSAM on its servers.

‘But Verizon discloses little information publicly on how it systematically manages child sexual exploitation online and through mobile devices,’ the proposal states. ‘We believe that [information and communications technology] companies lacking adequate policies, practices and disclosures to address child sexual exploitation could suffer substantial negative impacts regarding reputation, heightened regulation, adverse publicity or legal risk.’

Tracey Rembert, director of the CBIS Catholic responsible investing program, tells Corporate Secretary that she has been researching the issue since 2016 and was ‘staggered’ by the volume of abusive materials that are being produced.

From a governance perspective, the problem can be viewed as a product safety issue, in that systems and products typically made for adults are being used to facilitate harm to children, she says.

CBIS filed its first shareholder proposal on the subject with Apple last year, according to Rembert. However, it withdrew the proposal after Apple provided some relevant disclosure and agreed to set goals for dealing with the issue and to continue the dialogue, she adds.

CBIS had been in discussions with Verizon for more than a year but ultimately decided to file a proposal after it felt that there was a disorganized response from the company, Rembert says. She notes that the company has now made some disclosure on its website on the topic but says this is insufficient. CBIS is looking at a number of other companies around the same topic.

In the meantime, CBIS is working with a committee of child-protection specialists and other investors on devising a set of best practices for tech companies dealing with the problem of child exploitation. It aims to release guidance over the summer that can be used both by companies and investors to assess issuers’ efforts and push for improvements.

BOARD OBJECTIONS
The Verizon board of directors is recommending that shareholders vote against the proposal at the May 2 AGM in Orlando, Florida. ‘Verizon recognizes that we have an important role to play in combatting the use of the internet to exploit children… We realize that the same tools that empower our customers to communicate with family and friends can also be misused by predators to disseminate child sexual abuse material and groom children for abuse,’ the board comments.

But it argues that the company already devotes ‘extensive resources’ and employs ‘best practices’ to fight against predators. These, it states, include:

  • Working with the National Center for Missing and Exploited Children (NCMEC) and the Internet Watch Foundation to stop predators from distributing CSAM and trafficking children for sex online
  • Using cutting-edge technology that scans images and videos uploaded to Verizon servers against an industry database of known CSAM, and reporting the material the company finds to NCMEC to help local law enforcement carry out investigations
  • Employing a dedicated team that reviews and takes action upon user reports of CSAM and proactively searches for material missed by automated scanning
  • Searching Verizon servers for CSAM hosted on websites identified to the company so that the content can be removed
  • Collaborating with law enforcement, non-governmental organizations and industry groups, such as the Technology Coalition, to develop tools and protocols to help address the problem of online predators.

‘Verizon continually assesses further steps we can take to advance this critical effort. Accordingly, the board believes the requested report would not provide additional value to the company’s shareholders,’ the board states.

A Verizon spokesperson said the company has no comment beyond the board recommendation in the proxy.

Another shareholder proposal in Verizon’s proxy statement would, if approved, request that the board’s human resources committee publish a report assessing the feasibility of integrating cyber-security and data privacy performance measures into the Verizon executive compensation program.

The board is recommending that shareholders vote against this measure, too. It argues in part that adding cyber-security and data privacy targets to the executive compensation program would not have ‘the presumed effect of preventing a network or data security breach because there is not necessarily a correlation between an executive’s actions and the prevention of cyber or data-security incidents.’

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