Time to face-up to a lack of digital governance

Digital platforms such as Google, Facebook and Amazon have critically changed the way in which companies compete, generate and deliver value to their customers. Entire ecosystems of value-creation and exchange have been repositioned with the opening of new online spaces and channels that are allowing entrepreneurs to create and operate new firms.

Such platforms are disruptive, and as well as concerns around privacy, they can present an unhealthy dominance over their respective markets.

A case in point is Amazon’s global impact on consumer shopping habits. As such platforms become more popular, their user value increases disproportionately, until entire markets coalesce around them, preventing market access for new entrants and drawing any remaining independents towards their centre.

Familiar names including eBay, Etsy, Facebook, Instagram, Yelp and YouTube make it easier to generate income by offering platform-based entrepreneurs (PBEs) access to large-scale markets, along with various incentives to populate their platform ecosystems, simultaneously fulfilling two functions.

PBEs operate businesses using the platform as the intermediary. However, to the platform owner, the PBEs are complementors, whose existence is only important if it adds value to the platform.

With digital technology becoming ever more central to a firm’s competitive advantage, businesses are experiencing an increasing dependence on platform competitiveness.

Sixty of the world’s 100 largest corporations (ranked by market value) currently earn at least half of their revenue from platforms but governments are struggling to adapt to fast-changing technological realities with appropriate governance mechanisms or regulatory frameworks.

This inertia is problematic.

There is now an urgent need for governance in the digital-platform age to create boundaries for those working in partnership, and solutions to winner-takes-all outcomes.

However, existing corporate governance frameworks are ill-suited to digital-platform businesses. The current experience of so many stakeholders feeling alienated by the way corporations treat them cannot be allowed to continue.

But simply strengthening control mechanisms creates a culture that is inefficient, and institutionalises box-ticking and indirect evasion of legal obligations, resulting in socially destructive behaviour and corporate scandals.

Regulators and legislators need to consider more dynamic and responsive governance frameworks that are fit for the emerging purpose, whilst promoting and guiding entrepreneurial innovation for sustainable and responsible businesses.

The world of fast-evolving ‘business needs’ is best served by responsive, regulatory solutions that draw on active stewardship rather than the deadening hand of compliance.

Regulatory responsibilities will increasingly cross boundaries in the digital world, including local, national and supranational state and non-state authority lines.

Stewardship will continue to have greater relevance and meaning in digitally-determined markets. The question is how?

The purpose of governance and boards is to provide oversight of the assets under their care in order to realise greater fiscal value. However, with climate change and the erosion of our environment, value also needs to support and enhance human and societal wellbeing.

Technology has brought a new meaning to stewardship, which has traditionally focused on mediating through two fracture points, namely:

1. between the board and the C-suite – the meeting point between governance oversight and strategy creation

2. between the C-suite and the key general management – essentially the tension between corporate strategy initiation and the reality of strategy delivery.

Most boards have ignored the latter, often to the detriment of the enterprise and the dismay of critical stakeholders. Technology will change the very nature of stewardship from simple vertical oversight to horizontally-driven stewardship mentoring.

This involves multiple entities, and the number of fracture points now multiplies, exposing companies to greater risks and reputational concerns.

In our experience, there is little understanding of the number and nature of the sensitive interfaces that require stewarding, and no-one knows how many fracture points Boards of the future will encounter. But what we can foresee is that the ever-changing nature of those networked intra-relationships will become a Board responsibility.

As technology develops, we are facing a revolution of governance. Board directors of the future will no longer be dependent on compliance. Instead they will have to mediate across the multiple entities which make up the network. The greater the network complexity, the more the Board is exposed to having its credibility damaged, not because of poor product or service offerings, but more likely owing to stakeholder demands and rights that have not been sufficiently observed.

The governance of the information organisations of the future is therefore likely to be as important, if not more, than the information itself.

According to Andrew, ‘The governance of data is an already present and under-addressed challenge for Boards. Understanding the relevance of AI, big data and cyber security for the company will stretch the oversight capabilities of Board Directors. Such challenges and the capabilities to provide meaningful stewardship of the enterprise are critical discussions on the Henley Masters and short course Board programmes.’

Professor Andrew Kakabadse is Professor of Governance & Leadership and a Programme Director of The Board Directors' Programme at Henley Business School.

Professor Nada Kakabadse is Professor of Policy, Governance & Ethics at Henley Business School.

The full version of this article first appeared in Governance + Compliance magazine.