Category Archives: Business Models

Corporate Governance – exercising a “duty of awareness” in the age of social media

Posted on by
Reply

68

Do we need a new theory of Corporate Governance? Is it time to look at a new model that reflects the current environment in which businesses operate, an era characterised by:

  • social media,
  • corporate and social responsibility,
  • shareholder and consumer activism,
  • increased market connectivity, and
  • rapid generational change?

Has the law fallen behind in being able to regulate and oversee contemporary corporate behaviour – where compliance with and adherence to the letter of the law may no longer be enough to meet community standards or satisfy shareholder expectations?

The question arose during a roundtable discussion I attended recently, comprising non-executive directors, entrepreneurs, corporate advisers and governance experts. Some of the issues we kicked around included:

  • the efficacy of running more frequent board interaction via the use of technology (as opposed to the standard face-to-face monthly board meeting);
  • the ethics of minimising cross-border taxation by multinational companies (even though it may be legal under international tax law);
  • the imperative to develop more inclusive and diversified boards (including networking into broader stakeholder groups);
  • the perils of ill-considered public comments made by CEOs (and the resulting social media backlash); and
  • the risk of harking back to some “golden age” of corporate behaviour (assuming such an era actually existed)

Our current perspectives on Corporate Governance largely derive from the late 1980s and early 1990s when a series of authoritative studies and reports led to new Codes of Practice and updated corporations laws – I’m referring to the work done by and in the name of Tricker, Carver, Monks, Cadbury, Greenbury, Hilmer and Hempel. And while in recent years we have seen increased scrutiny on CSR, directors’ remuneration and financial oversight by boards (plus Sarbanes-Oxley, Dodd-Frank and IFRS), the reality is that most of the earlier Corporate Governance reforms were introduced just as the internet went public and just as financial markets were being deregulated. So it could be argued that the reforms were ill-equipped for, or could not have anticipated, the changes to come – witness for example, the SEC’s recent approval of social media as an appropriate platform for corporate disclosure.

In Australia, Corporate Governance is described simply as “good decisions being made by the right person”, and the obligations of company directors are summarised as follows:

  • your primary duty is to the shareholders;
  • you must act with appropriate due care and diligence;
  • you must not allow the company to trade while insolvent;
  • you must exercise your powers in good faith and in the best interests of the company;
  • you must not improperly use your position of (or information obtained as) a director to benefit yourself or another person, or to cause detriment to the company.

On one level, the test of whether an organization has exercised good judgement in making a decision is, “would you be embarrassed if this was reported on the front page of tomorrow’s newspaper?” At another, Corporate Governance is reduced to a compliance checklist of risk mitigation measures.

The Australian courts (in the OneTel and Centro cases) have expanded and reinforced the duty of care (particularly in relation to the business judgement rule) to place greater accountability on individual directors to consider what a reasonable person would do in exercising their duty of care and diligence:

  • To understand the fundamentals of the business
  • To keep themselves informed of the company’s activities
  • To monitor the company’s activities (e.g., through active questioning)

The question we should be addressing is: “Does imposing a broad duty of care and specific fiduciary obligations ensure an appropriate level of Corporate Governance?” I would argue that in light of a rapidly changing operating environment, we would be well-advised to exercise a “duty of awareness” in respect of our Corporate Governance standards. In my view, directors need to take a wider perspective in understanding and monitoring the business fundamentals and the company’s activities. Some may argue that this is not a new duty, it has simply been forgotten in recent times – and in the era of social media, when it is far easier to “get caught out”, it would be prudent to have more regard for the broader context.

A “duty of awareness” offers an appropriate counter-balance to the numerous areas of self-regulation by industry sectors and by individual companies. It provides an objective test for assessing “if not, why not” explanations required under both voluntary and mandatory Codes of Practice – i.e., did the respondent take into account all relevant factors, and did the respondent adopt a sufficient level of awareness in evaluating its options under a chosen course of action?

The “duty of awareness” means that at an individual level, directors would be obliged to reflect on their contribution to and participation in board decisions; boards would need to consider the likely impact of their decisions on the company’s performance and on wider stakeholders; and companies would be expected to have regard to their standing as a good corporate citizen, not merely a compliant one.

Acknowledgements: I am grateful to Andrew Donovan of Thoughtpost Governance and Dale Simpson of Bravo Consulting Group for their invaluable contributions to this article.

Audiobus – a case study in app collaboration

Posted on by
8

An elegant solution for audio app management

Like many leading CEOs and successful business people, I think it’s essential for all of us to have a creative outlet or a hobby, something that is not directly connected to our working lives.

For my part, I like to compose and record music using iOS apps, under an assumed nom de musique. Several of my compositions have been broadcast on national radio, and occasionally listeners are kind enough to purchase and download the music from my artist website.

In exploring this newer form of music-making, I am fortunate enough to gain access to pre-release and beta versions of new apps, which allows me to provide constructive feedback on new designs and recommend suggested features. This activity also provides some insights on best practice for collaborative app development:

  • Listen to your customers and their needs
  • Listen to your customers’ suppliers and their problems
  • Create a common technical standard (not the same as an open standard)
  • Encourage early adoption by making the standard available to key suppliers
  • Embark on an engaging programme of pre-release marketing via social media
  • Underpromise and over-deliver (but always deliver what you promised, and on time)
  • Repeat the process ad infinitum

There is a very active community of iOS musicians. This community is a thriving cottage industry: most practitioners are non-professionals; some are working on the fringes of the music industry; and a few are well-known software developers, producers and commercial recording artists in their own right. It’s a supportive community, and one where it’s easy to find your own level. It also tends to be a highly collaborative environment, with most participants willing to share their knowledge and provide help and advice. There are dedicated micromusic blogs, helpful product review sites and supportive technical forums.

Which brings me to Audiobus, one of the more interesting new apps that is gaining a lot of attention from developers, users and reviewers alike.

Music apps can be divided into 3 broad categories:

The problem is that most of these apps were not designed to “talk” to one another. Initially, it was possible to connect some apps using MIDI tools, but for many amateurs, this is probably a technical stretch. Besides, in the real world, I can plug a guitar and a keyboard into the same amplifier, or connect them to my desktop recording software via a single interface, easily enough.

Unfortunately, real-time audio generated in one app could not be connected to another app. Audio recordings could only be shared across multiple apps using some tedious save/copy/paste functions, or long-winded export and import processes. Audiobus solves this problem with an elegant design solution that works so simply, you have to wonder why Apple didn’t think of it themselves.

Rather than provide a technical overview of Audiobus, I’m more interested in the business model, and the potential case study it offers for future collaboration between app designers and content developers:

1. Audiobus is a collaboration between the developers behind two of the more successful audio apps, SoundPrism and Loopy HD

2. The developers have released an SDK for easier integration of new and existing 3rd party apps

3. There were a reasonable number of existing apps compatible with Audiobus when it launched, and more are being added all the time

4. As one reviewer has commented, buying the Audiobus app actually increases the useability (and therefore the value) of other apps

5. The key to Audiobus is providing a common standard for handling and processing audio recordings created in different apps

At least one app developer abandoned a new design for audio sharing between his own apps when he realised that the Audiobus solution would offer much more flexibility.

When combined with apps like AudioShare (a document management and conversion tool for audio files) and SoundCloud (THE social media platform for audio), Audiobus is really helping to open up and foster a multi-function environment for musicians through content compatibility, integration, sharing, exporting and collaboration.

Frustratingly, I sometimes struggle to figure out which of my iOS apps I need to use to open, edit and share text files, pdf documents, spreadsheets and slides. All too often, files suffer from incompatible formats, fonts, layout and graphics. If only we could have the same level of collaboration for e-books and productivity tools that Audiobus has fostered for music apps!

Geo-blocking: the last digital frontier?

Posted on by
6

Last month, senior executives from Adobe, Apple and Microsoft were summoned to appear before an Australian Parliamentary inquiry into IT pricing policies. It was alleged that Australian consumers can pay up to 70% more for comparable products and services sold in other markets.

Leaving aside the additional costs of distributing and shipping physical goods to Australia, at the heart of the pricing disparity is the practice of “geo-blocking” whereby customers in one location cannot purchase digital or physical products direct from vendors outside their country of residence. It’s the sort of industry practice that prevents Australian consumers buying some print books and CD’s from Amazon.com or Amazon.co.uk (and neither store sells MP3’s to Australian customers).

When asked to explain the apparent disparity in market pricing, the tech execs responded with comments such as, “the inclusion of Australian sales tax in the retail price is confusing”, “it’s a reflection of the cost of doing business in Australia” and “it’s all because of the content owners’ and copyright holders’ archaic territorial licensing practices”.

Their answers were variously described as “evasive“, “unbelievable” and “failed to impress“. The suggestion by one CEO that Australian consumers should fly to the USA to buy cheaper products overseas, was frankly ludicrous, especially as sales warranties given in America would likely be invalid once the goods were brought back to Australia.

When it can be cheaper to buy a CD copy of an album from an on-line music retailer in the UK rather than download the MP3 version from a vendor in Australia, clearly there is something wrong with this picture.

“Parallel imports” and “grey goods” are terms used in the fashion, cosmetic and other retail sectors to describe situations where wholesalers and distributors import branded goods that are technically subject to strict territorial sales and distribution licenses held by third parties. Alternatively, consumers in one country purchase goods direct from a retailer or distributor located in another country, who does not have the rights to sell or export the products to the consumer’s country of residence. The license holders can seek to block these unauthorized imports/exports, but in cases where the license holder has chosen not to distribute those specific goods, these “grey” imports could possibly be deemed legitimate (under the “use it or lose it” principle).

Whatever the legal interpretation of territorial licensing, when it comes to digital content, is geo-blocking still appropriate? Let me offer an illustration:

Imagine you are an Australian traveller on a business trip to New York. You visit a local book shop, to pick up a copy of the latest novel by your favourite author.

Unfortunately, the salesperson tells you the book is not in stock, because the publisher does not distribute that particular title to independent stores; instead, you have to go to the mega book store across town.

After making your way to the mega store, you find out that before you can make any purchase, you have to open an account, submit your credit card details and other personal information (and sign a contract that says things like “you must always keep books bought from our store in our proprietary and specially designed book shelves”).

Just as you are about to make your purchase, the shop assistant asks you for your passport. “Oh, I’m sorry, we don’t sell our books to people from Australia. You have to go to our mega store in Sydney.”

On the way back to your hotel, you phone the publisher (whose office is on your route) to see if you can buy a copy direct from their sales department. The conversation goes something like this:

“You sound Australian. Sorry, but we can’t sell it to you. You have to buy it from our Australian distributor.”

“OK, can you tell me who the Australian distributor is, or which shops stock your titles?”

“I’m not sure. I think it depends on who the author is. Or whether it’s the hardback or paperback edition. Or whether our distributor is importing that particular title. Maybe we only sell it through the Australian branch of the mega book store that wouldn’t sell you it to you while you were in town. Have a nice day.”

Great. With nothing to read on the 20-hour flight back to Australia, you catch up on a lot of episodes of “Bored to Death”, because you don’t expect them to be shown on Australian TV for at least a year. (But that’s another industry scenario…)

Back home in Australia, you visit the Sydney branch of the mega book store. “I’m sorry, we don’t have that title in stock, because we haven’t had enough customer requests to justify importing any copies…..”

Is it any wonder, with these sorts of restrictive commercial practices common in the software and digital content industries, that Australia has the highest level of illegal music downloading by capita, not because all Australian consumers are unwilling to pay for content, but often because customers cannot legitimately buy it.

Social Networks – All the News You Can Eat

Posted on by
2

The New York Times‘ motto, “All the News That’s Fit to Print” was modified to “All the News That’s Fit to Click” when the newspaper went on-line. But based on the heated competition for on-line readership, as we move from dedicated news platforms to internet  megastores, and as news content pricing and business models are savaged by social media, the rallying cry is more like “All the News You Can Eat”.

It’s clear that social network sites are stepping up their efforts to attract more readers for on-line news content, if recent events are anything to go by:

1. Google rethinks its strategy for the Reader application, which will no doubt resurface in a new form within Google+.

2. Facebook announces changes to its news feed as it aims to create a highly personalized newspaper experience.

3. Twitter plans to introduce better contextual analysis around trending stories.

4. Yahoo! makes a splash with its purchase of Summly – a news aggregation app which has now been shut down prior to integration within the Yahoo! platform.

5. Even LinkedIn has been getting in on the act with its LinkedIn Today content aggregation tool.

Defining what constitutes news is no longer determined by the traditional business models for print and broadcast media. “Old-school” factual reporting (the “who, what, where, when and how”) combined with informed opinion and analysis (the “why”) is now something of a dying format. In its voracious appetite for content, social media is willing to slap the label “news” on anything that moves. So, one person’s news is another person’s gossip, trivia, PR, party political spin, advertorial or propaganda. All very post-modern and structuralist – the news is whatever you make it.

In response, established newspaper media are building pay walls around their on-line product, to offset the decline in print sales and classified advertising, even though most social media sites are offering “news” for free. This point is significant, because not only does this make it harder for newspapers to charge for content, the proliferation of free metro newspapers in many cities means that paying for a newspaper is something of an anathema to most people. Why on earth would they pay for on-line news content?

While it is understandable that newspapers want to charge for their content, they would be seriously misguided if they continue to see the content alone as the product. Of course, a reliable news service is expensive to produce, but the cost to the consumer should also be about quality, access and convenience. What we are paying for is the newspaper’s role as author, editor, curator, archivist, publisher, aggregator and distributor. In some cases, newspapers are recognized as a document of record – but we are probably some way off granting social media sites the same status.

What are the likely outcomes from this competition for news readership?

Initially, the traditional news media will continue to suffer declining print circulation, and will be challenged to make pay walls work. Stronger news brands with even deeper pockets will probably survive, but  they will need to think about upgrading their content syndication business models to remain relevant within an on-line and social media environment. There will be more apps and tools for personalized news aggregation, but only if these platforms can access or license enough content to be viable, and only if they can monetize the offering to be financially sustainable.

The great irony is that few of us want to rely on a single news source, but we want the convenience of getting all our news in one place.

My guess is that the we’ll see social media sites emerge as “news supermarkets”. They will source content from various suppliers, with whom they will engage in trading terms akin to practices commonly seen in the grocery industry: charging for shelf space and product placement, seeking bulk discounts, and adopting strict supply chain agreements. There will even be “own brand” and “house brand” content, plus a range of specialist and localized products to cater for individual tastes.

Alternatively, “news department stores” might emerge, hosted by a few of the major news brands, where they provide a marketplace for third-party content they have carefully selected and curated, along with a core range of content produced by their talented pool of in-house writers and journalists. Or, like IKEA and some up-scale department stores, the products will be store-branded, but designed by and commissioned from their business partners.

In both cases, these news department stores and news supermarkets could be the anchor tenants in large online news malls, where specialist and independent content providers (including bloggers) can set up shop to attract passing readers.

On a final note, the recent media legislation in the United Kingdom, and the attempted media reforms in Australia, have renewed debate around news regulation: who is to be regulated, what is to be regulated (especially on-line), and by whom will they be regulated? While much of this debate is concerned with news media standards and supervision, as well as issues of ownership and control, there is also a need to consider the impact that internet technology and on-line business models are having on the development, dissemination and consumption of news.