Earlier this month, Meta announced a controversial shift in its approach to misinformation, replacing independent fact-checkers on Facebook and Instagram with a Community Notes-style system. As the company framed it, this move is designed to support “more speech and fewer mistakes” by leveraging user contributions to contextualize misleading posts. However, this decision has sparked a wave of criticism. Last week, the International Fact-Checking Network (IFCN) released an open letter to Mark Zuckerberg, warning of the increased risks of misinformation and its consequences for businesses and society. The letter underscored that this approach undermines accountability and could exacerbate the rapid spread of fake news, leaving businesses particularly vulnerable.
The Financial And Reputational Fallout Of Fake News
Indeed, we’ve seen how quickly fake news can upend financial markets and corporate reputations. In 2023, for example, a fabricated tweet showing a fake explosion near the Pentagon rattled the U.S. stock market, causing a brief but impactful downturn. Then there was the notorious case of Eli Lilly’s fake tweet promising free insulin in November 2022. That cost the pharmaceutical multinational $22 billion in the stock market. This isn’t a new phenomenon – as far back as 2013, a fake report of explosions at the White House caused the S&P 500 to lose $130 billion in market capitalization within minutes.
Research Insights: X’s Community Notes And Their Limits
These examples demonstrate that fake news is more than an annoyance – it’s a significant economic and reputational threat. For managers and CEOs, the lesson is clear: their businesses need to act swiftly and decisively in the face of misinformation.
This was one of the conclusions from our years of research built on a database of around 240,000 notes from X’s (formerly Twitter) Community Notes program. This is a system where users collaboratively provide context to potentially misleading posts. We sought to analyze the causal influence of appending contextual information to potentially misleading posts on their dissemination. While the program offered valuable insights into combating misinformation, our findings reveal critical limitations.
In this study, we found that Community Notes double the probability of a tweet being deleted by its creator. However, as we point out, the note often arrives too late, as around 50% of retweets happen within the first six hours of a tweet’s life. While Community Notes reduce on average retweets by more than 60%, the median note takes over 18 hours to be published – too slow to combat the initial, viral spread of misinformation. This confirms an MIT study in 2018 which showed that falsehoods can go “10 to 20 times faster than facts”.
It also highlights a critical challenge: while community-driven fact-checking is a valuable tool, its current design and speed are insufficient to mitigate the rapid dissemination of fake news. And the latter is only getting faster.
The Leadership Imperative: Proactive Strategies Against Fake News
As researchers and observers of the misinformation landscape, we believe that businesses must adopt proactive measures to safeguard their reputations and operations. Here are key strategies media and company experts recommend which can be easily implemented into business practices:
- Speed Matters: The rapid spread of fake news demands equally rapid responses. Investing in real-time monitoring tools and developing robust crisis communication strategies are essential steps to mitigate misinformation before it takes root.
- Leverage Collective Intelligence: Just as Community Notes taps into the wisdom of the crowd, businesses can collaborate with fact-checking organizations or third-party platforms to ensure accurate information reaches stakeholders in a timely manner.
- Educate and Empower Employees: Internal vigilance can be a company’s first line of defense. By training employees to identify and respond to misinformation, organizations can create a culture of preparedness and resilience.
The Cost Of Underestimating Fake News
As we said earlier, we’ve seen firsthand how fake news can lead to financial and reputational damage. In 2018, a forged memo from the U.S. Department of Defense falsely claimed regulatory violations in the merger of a semiconductor company. This misinformation caused the companies involved to lose millions in valuation and temporarily stalled their merger discussions. Similarly, in 2019, Tesla faced scrutiny when a viral, fake video claimed one of its autonomous vehicles had crashed into a robot. Although debunked, the video fueled debates and tarnished Tesla’s reputation during a pivotal innovation phase.
In another notable example, JP Morgan faced a “misinformation shock” in 2017 following allegations it had transferred $875 million into the account of an oil minister in Nigeria. Despite an English court ruling in its favor, the fake allegations cost the company a “2.7 standard deviation” in its external reputation score. The cascading effects included lost revenue, increased regulatory scrutiny, and reputational damage. Such examples highlight that even when misinformation is corrected, the damage to trust and reputation can linger. For us, the takeaway is clear: vigilance is not just necessary – it’s critical.
The Way Forward: Leadership In The Age Of Misinformation
Meta’s decision to replace independent fact-checkers with a Community Notes-style system on Instagram and Facebook highlights the urgency of addressing misinformation at scale. As our research demonstrates, these systems need to evolve to match the speed of misinformation’s spread.
We believe that integrating AI-driven tools could significantly enhance human efforts, enabling faster detection and flagging of potentially harmful content. For example, machine learning models trained to identify patterns of misinformation can serve as an early warning system, while large language models (LLMs) can complement these efforts. LLMs analyze the linguistic and thematic patterns of viral posts to provide real-time contextualization. This dual approach allows platforms and companies to respond to misinformation more effectively and in near real-time. Moreover, fostering partnerships between social media platforms, governments, and private entities could lead to more unified standards for combating fake news.
There is also an opportunity for businesses to take the lead in advocating for robust content moderation and fact-checking frameworks – especially on social media. After all, according to Business Dasher, an average 94% of American businesses use social media and three-quarters of small businesses use it for essential functions like sales, customer and marketing services. In an economy where trust is as valuable as revenue, underestimating the impact of fake news is no longer an option. By learning from research and real-world examples, companies can turn the challenges of misinformation into opportunities for resilience and integrity – proving that today’s crises can be the foundation of tomorrow’s success.
Ultimately, combating misinformation requires a blend of technological innovation, collaborative intelligence, and proactive leadership. The stakes are too high for complacency. By staying ahead of the curve, businesses not only protect themselves but also contribute to a more informed and resilient society.
David Restrepo Amariles, HEC Associate Professor of Artificial Intelligence and Law, Hi! PARIS Fellow, and Worldline Chair Professor
Thomas Renault, Assistant Professor of Economics at the University Paris I.
Aurore Troussel Clément, lawyer and HEC PhD candidate in AI and law.
Daniel Brown is Head of HEC Research Communication.