By: Creating Future Us
July 28, 2020
To a greater degree than any other sector, technology companies are facing rising forces propelling them towards a more fragmented future – a trend we highlighted in our New Year’s letter. Can Digital Age governance deliver innovative solutions to address these forces, with positive cost-benefit outcomes?
The days when technology companies were homogeneous, global players are rapidly disappearing and three key vectors are driving this splintering:
- Desire for greater geopolitical control, in a power-flexing showdown:
- The proliferation of firewalls driven by need for censorship, desire to shape public opinion and fear of foreign cyber interference (e.g. US/UK from China/Russia, respectively)
- Increasingly, commercial tech firms are being pressured by governments – or even used as proxies to force other governments – into taking sides on political and geopolitical matters: “it may not be too much of a stretch to talk about the privatisation of internet content control”. Recent examples companies facing such choices are TikTok and Huawei on Chinese state influence, HSBC on Hong Kong, and Boeing on selling torpedoes to Taiwan
- Regulation tightening access to data: It’s been clear for at least 3 years now that data islands will emerge as a result of regulation. This was given a further boost by Europe’s GDPR. More than 100 countries now have some sort of similar data sovereignty laws in place
- In addition, Google is working on a project known as “Sharded Google,” which is seeking to develop new data storage and processing facilities, known as “shards,” that are walled off from the rest of the company’s systems, to accommodate these requests, but that subsequently require new – often more complex – management and infrastructure models in order to run them
- Supply chain disruption – Covid’s temporary supply chain bottlenecks that foreshadowed vulnerabilities, is highlighting unwelcome dependencies. This is not only relevant for commercial companies, but as we previously identified, for governments. They, equally, are reassessing and scrambling to identify strategically important supply chain weaknesses and dependencies. We expect that a new protectionism will emerge from this analysis, with a resulting home-shoring of key components and services, especially for sensitive technologies
- The proliferation of firewalls driven by need for censorship, desire to shape public opinion and fear of foreign cyber interference (e.g. US/UK from China/Russia, respectively)
- A drive for more prosperity sharing:
- Taxation that seeks to more evenly distribute the spoils of tech giants is a big wrangling ground for various regions (EU vs US and US vs China for now). An example is the recent Apple landmark win of a court battle with EU over €14.3bn of tax payments. This will drive how technology companies increasingly segregate revenue, IP and profit centres
- Monopoly and anti-trust will also shape the disaggregation of technology behemoths, as market competition is redefined unevenly by different regions. There are significant variations in law, policy, and enforcement. For example, US antitrust policy is primarily designed to protect consumer welfare (i.e., produce a variety of products at reasonable prices), with modest elements of fairness (right of firms to be free of coercion) and of hostility to vast concentrations of economic power. The European Union, however, is concerned about competitive opportunities for small and medium-size firms, raising the economic level of worse-off nations, and general notions of “fairness.”
As the drivers above begin to intersect with commercial considerations, such as market density and profitability, companies will need to explore an ever-wider range of solutions and structures to address these multiple stakeholder needs. An optimal cost-benefit outcome is likely to involve a combination of local solutions that take on various forms, such as ringfencing, partnerships and M&A.
Organisations will therefore need to develop innovative Digital Age governance structures, ones that can effectively and cleanly allocate independence, control, data governance and revenues to the boards of those splintered subsidiaries, while continuing to address the concentration of power concerns from anti-trust regulators. We also anticipate an increased use or creation of “neutral jurisdictions” (a ‘Switzerland’ of legal and governance regulation, so to speak), where companies can establish new geo-strategic bases that appease some of the geopolitical concerns.
At Creating Future Us, we continually monitor the new complex landscape of the Digital Age, gathering insights about its impacts on the Environment, Society and Governance. We are poised and ready to help organisations grappling with these issues, and to develop the Digital Age Governance models that can help them succeed. Are you seeing any such trends arise? What are your experiences of structures that are working in this emerging world? On these questions and more, we would be delighted to hear from you to add to our growing toolkit, or provide insights and advice.