Category Archives: Governance

“The Digital Director”

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Last year, the Australian Institute of Company Directors (AICD) ran a series of 10 webinars under the umbrella of “The Digital Director”. Despite the title, there was very little exploration of “digital” technology itself, but a great deal of discussion on how to manage IT within the traditional corporate structure – as between the board of directors, the management, and the workforce.

There was a great deal of debate on things like “digital mindset”, “digital adaption and adoption”, and “digital innovation and evolution”. During one webinar, the audience were encouraged to avoid using the term “digital transformation” (instead, think “digital economy”) – yet 2 of the 10 sessions had “digital transformation” in the title.

Specific technical topics were mainly confined to AI, data privacy, data governance and cyber security. It was acknowledged that while corporate Australia has widely adopted SaaS solutions, it lacks depth in digital skills; and the percentage of the ASX market capitalisation attributable to IP assets shows we are “30 years behind the USA”. There was specific mention of blockchain technology, but the two examples given are already obsolete (the ASX’s abandoned project to replace the CHESS system, and CBA’s indefinitely deferred roll-out of crypto assets on their mobile banking app).

Often, the discussion was more about change management, and dealing with the demands of “modern work” from a workforce whose expectations have changed greatly in recent years, thanks to the pandemic, remote working, and access to new technology. Yet, these are themes that have been with us ever since the first office productivity tools, the arrival of the internet, and the proliferation of mobile devices that blur the boundary between “work” and “personal”.

The series missed an opportunity to explore the impact of new technology on boards themselves, especially their decision-making processes. We have seen how the ICO (initial coin offering) phase of cryptocurrency markets in 2017-19 presented a wholly new dimension to the funding of start-up ventures; and how blockchain technology and smart contracts heralded a new form of corporate entity, the DAO (decentralised autonomous organisation).

Together, these innovations mean the formation and governance of companies will no longer rely on the traditional structure of shareholders, directors and executives – and as a consequence, board decision-making will also take a different format. Imagine being able to use AI tools to support strategic planning, or proof-of-stake to vote on board resolutions, and consensus mechanisms to determine AGMs.

As of now, “Digital Directors” need to understand how these emerging technologies will disrupt the boardroom itself, as well as the very corporate structures and governance frameworks that have been in place for over 400 years.

Next week: Back in the USA

 

 

 

Free speech up for sale

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When I was planning to post this article a couple of weeks ago, Elon Musk’s bid to buy Twitter and take it into private ownership was looking unlikely to succeed. Musk had just declined to take up the offer of a seat on the Twitter board, following which the board adopted a poison-pill defence against a hostile takeover. And just as I was about to go to press at my usual time, the news broke that the original bid had now been accepted by the board, so I hit the pause button instead and waited a day to see what the public reaction was. What a difference 72 hours (and US$44bn) can make… It seems “free speech” does indeed come with a price.

Of course, the Twitter transaction is still subject to shareholder approval and regulatory clearance, as well as confirmation of the funding structure, since Musk is having to raise about half the stated purchase from banks.

Musk’s stated objective in acquiring Twitter was highlighted in a press release put out by the company:

“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” said Mr. Musk. “I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.”

This latest development in Musk’s apparent love/hate relationship with Twitter is bound to further divide existing users as to the billionaire’s intentions, as well as raise concerns about the broader implications for free speech. Musk himself has encouraged his “worst critics” to stay with the platform. Meanwhile, founder and former CEO, Jack Dorsey has renewed his love of Twitter, despite only recently stepping away from the top job to spend more time on his other interests.

Personally, I’m not overly concerned that a platform such as Twitter is in private hands or under single ownership (subject, of course, to anti-trust rules, etc.). Far from creating an entrenched monopoly, it may actually encourage more competition by those who decide to opt out of Twitter. What I am less comfortable with is the notion that Twitter somehow acts as an exemplar of free speech, and as such, is a bastion of democracy.

On the positive side, we will be able to judge the veracity of Musk’s objectives against his actual deeds. For example, will Twitter actually introduce an edit button, make its algorithms open-source, exorcise the spam bots, verify users, and reduce/remove the platform’s reliance upon advertising?

On the negative side, what credible stance will Twitter now take on “free speech”, short of allowing an “anything goes” policy? If Musk is sincere that Twitter will be a platform for debating “matters vital to the future of humanity”, he may need to modify what he means by public discourse. Personal slanging matches with fellow-billionaires (and those less-able to defend themselves) do not make for an edifying public debating forum. Musk’s own disclosures about Twitter and his other business interests will also come under increased scrutiny. We know from past experience that Elon’s Tweets can move markets, and for this alone he should be aware of the responsibility that comes with ownership of the platform.

We have long understood that free speech is not the same as an unfettered right to say what you like in public – there are limits to freedom of expression, including accountability for the consequences of our words and actions, especially where they can cause harm. The broader challenges we face are:

  • technology outpacing regulation, when it comes to social media
  • defining what it means to “cause offence”
  • increased attacks on “mainstream media” and threats to freedom of the press

1. Just as the printing press, telegraphy, telephony, broadcasting and the internet each resulted in legislative changes, social media has continued to test the boundaries of regulation under which its predecessors now operate. Hitherto, much of the regulation that applies to social and digital media relates to privacy and data protection, as well as the existing law of defamation. But the latter varies considerably by jurisdiction, and by access to redress, and availability of remedies. Social media platforms have resisted attempts to treat them as traditional media (newspapers and broadcasters, which are subject to licensing and/or industry codes of practice) or treat them as publishers (and therefore responsible for content published on their platforms). (Then there is the question of how some social media platforms manage their tax affairs in the countries where they derive their revenue.)

The Australian government is attempting to challenge social media companies in a couple of ways. The first has been to force these platforms to pay for third-party news content from which they directly and indirectly generate advertising income. The second aims to hold social media more accountable for defamatory content published on their platforms, and remove the protection of “anonymity”. However, the former might be seen as a (belated) reaction to changing business models, and largely acting in favour of incumbents; while the latter is a technical response to the complex law of defamation in the digital age.

2. The ability to be offended by what we see or hear on social media is now at such a low bar as to be almost meaningless. During previous battles over censorship in print, on stage or on screen, the argument could be made that, “if you don’t like something you aren’t being forced to watch it”, so maybe you are deliberately going in search of content just to find it offensive. The problem is, social media by its very nature is more pervasive and, fed by hidden algorithms, is actually more invasive than traditional print and broadcast media. Even as a casual, passive or innocent user, you cannot avoid seeing something that may “offend” you. Economic and technical barriers to entry are likewise so low, that anyone and everyone can have their say on social media.

Leaving aside defamation laws, the concept of “hate speech” is being used to target content which is designed to advocate violence, or can be reasonably deemed or expected to have provoked violence or the threat of harm (personal, social or economic). I have problems with how we define hate speech in the current environment of public commentary and social media platforms, since the causal link between intent and consequence is not always that easy to establish.

However, I think we can agree that the use of content to vilify others simply based on their race, gender, sexuality, ethnicity, economic status, political affiliation or religious identity cannot be defended on the grounds of “free speech”, “fair comment” or “personal belief”. Yet how do we discourage such diatribes without accusations of censorship or authoritarianism, and how do we establish workable remedies to curtail the harmful effects of “hate speech” without infringing our civil liberties?

Overall, there is a need to establish the author’s intent (their purpose as well as any justification), plus apply a “reasonable person” standard, one that does not simply affirm confirmation bias of one sector of society against another. We must recognise that hiding behind our personal ideology cannot be an acceptable defence against facing the consequences of our actions.

3. I think it’s problematic that large sections of the traditional media have hardly covered themselves in glory when it comes to their ethical standards, and their willingness to misuse their public platforms, economic power and political influence to undertake nefarious behaviour and/or deny any responsibility for their actions. Think of the UK’s phone hacking scandals, which resulted in one press baron being deemed “unfit to run a company”, as well as leading to the closure of a major newspaper.

That said, it hardly justifies the attempts by some governments, populist leaders and authoritarian regimes to continuously undermine the integrity of the fourth estate. It certainly doesn’t warrant the prosecution and persecution of journalists who are simply trying to do their job, nor attacks and bans on the media unless they “tow the party line”.

Which brings me back to Twitter, and its responsibility in helping to preserve free speech, while preventing its platform being hijacked for the purposes of vilification and incitement to cause harm. If its new owner is serious about furthering public debate and mature discourse, then here are a few other enhancements he might want to consider:

  • in addition to an edit button, a “cooling off” period whereby users are given the opportunity to reconsider a like, a post or a retweet, based on user feedback or community interaction – after which time, they might be deemed responsible for the content as if they were the original author (potentially a way to mitigate “pile-ons”)
  • signing up to a recognised industry code of ethics, including a victim’s formal right of reply, access to mediation, and enforcement procedures and penalties against perpetrators who continually cross the line into vilification, or engage in content that explicitly or implicitly advocates violence or harm
  • a more robust fact-checking process and a policy of “truth in advertising” when it comes to claims or accusations made by or on behalf of politicians, political parties, or those seeking elected office
  • clearer delineation between content which is mere opinion, content which is in the nature of a public service (e.g., emergencies and natural disasters), content which is deemed part of a company’s public disclosure obligations, content which is advertorial, content which is on behalf of a political party or candidate, and content which is purely for entertainment purposes only (removing the bots may not be enough)
  • consideration of establishing an independent editorial board that can also advocate on behalf of alleged victims of vilification, and act as the initial arbiter of “public interest” matters (such as privacy, data protection, whistle-blowers etc.)

Finally, if Twitter is going to remove/reduce advertising, what will the commercial model look like?

Next week: The Crypto Conversation

Smart Contracts… or Dumb Software

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The role of smart contracts in blockchain technology is creating an emerging area of jurisprudence which largely overlaps with computer programming. However, one of the first comments I heard about smart contracts when I started working in the blockchain and crypto industry was that they are “neither smart, nor legal”. What does this paradox mean in practice?

First, smart contracts are not “smart”, because they still largely rely on human coders. While self-replicating and self-executing software programs exist, a smart contact contains human-defined parameters or conditions that will trigger the performance of the contract terms once those conditions have been met. The simplest example might be coded as a type of  “if this, then that” function. For example, I could create a smart contract so that every time the temperature drops below 15 degrees, the heating comes on in my house, provided that there is sufficient credit in the digital wallet connected to my utilities billing account.

Second, smart contracts are not “legal”, unless they comprise the necessary elements that form a legally binding agreement: intent, offer, acceptance, consideration, capacity, certainty and legality. They must be capable of being enforceable in the event that one party defaults, but they must not be contrary to public policy, and parties must not have been placed under any form of duress to enter into a contract. Furthermore, there must be an agreed governing law, especially if the parties are in different jurisdictions, and the parties must agree to be subject to a legal venue capable of enforcing or adjudicating the contract in the event of a breach or dispute.

Some legal contacts still need to be in a prescribed form, or in hard copy with a wet signature. A few may need to be under seal or attract stamp duty. Most consumer contracts (and many commercial contracts) are governed by rules relating to unfair contract terms and unconscionable conduct. But assuming a smart contract is capable of being created, notarised and executed entirely on the blockchain, what other legal principles may need to be considered when it comes to capacity and enforcement?

We are all familiar with the process of clicking “Agree” buttons every time we sign up for a social media account, download software or subscribe to digital content. Let’s assume that even with a “free” social media account, there is consideration (i.e., there’s something in it for the consumer in return for providing some personal details), and both parties have the capacity (e.g., they are old enough) and the intent to enter into a contract, the agreement is usually no more than a non-transferable and non-exclusive license granted to the consumer. The license may be revoked at any time, and may even attract penalties in the event of a breach by the end user. There is rarely a transfer of title or ownership to the consumer (if anything, social media platforms effectively acquire the rights to the users’ content), and there is nothing to say that the license will continue into perpetuity. But think how many of these on-line agreements we enter into each day, every time we log into a service or run a piece of software. Soon, those “Agree” buttons could represent individual smart contracts.

When we interact with on-line content, we are generally dealing with a recognised brand or service provider, which represents a known legal entity (a company or corporation). In turn, that entity is capable of entering into a contract, and is also capable of suing/being sued. Legal entities still need to be directed by natural persons (humans) in the form of owners, directors, officers, employees, authorised agents and appointed representatives, who act and perform tasks on behalf of the entity. Where a service provider comprises a highly centralised entity, identifying the responsible party is relatively easy, even if it may require a detailed company search in the case of complex ownership structures and subsidiaries. So what would be the outcome if you entered into a contract with what you thought was an actual person or real company, but it turned out to be an autonmous bot or an instance of disembodied AI – who or what is the counter-party to be held liable in the event something goes awry?

Until DAOs (Decentralised Autonomous Organisations) are given formal legal recognition (including the ability to be sued), it is a grey area as to who may or may not be responsible for the actions of a DAO-based project, and which may be the counter-party to a smart contract. More importantly, who will be responsible for the consequences of the DAO’s actions, once the project is in the community and functioning according to its decentralised rules of self-governance? Some jurisdictions are already drafting laws that will recognise certain DAOs as formal legal entities, which could take the form of a limited liability partnership model or perhaps a particular type of special purpose vehicle. Establishing authority, responsibility and liability will focus on the DAO governance structure: who controls the consensus mechanism, and how do they exercise that control? Is voting to amend the DAO constitution based on proof of stake?

Despite these emerging uncertainties, and the limitations inherent in smart contracts, it’s clear that these programs, where code is increasingly the law, will govern more and more areas of our lives. I see huge potential for smart contracts to be deployed in long-dated agreements such as life insurance policies, home mortgages, pension plans, trusts, wills and estates. These types of legal documents should be capable of evolving dynamically (and programmatically) as our personal circumstances, financial needs and living arrangements also change over time. Hopefully, these smart contracts will also bring greater certainty, clarity and efficiency in the drafting, performance, execution and modification of their terms and conditions.

Next week: Free speech up for sale

 

Federation. Is. Broken. Surely?

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Why don’t we celebrate the Australian Federation? Logically, it would make more sense to mark the formation of the Commonwealth of Australia (January 1, 1901), rather than the highly contentious Australia Day (January 26). The former offers the notion of nationhood and a sense of progress; the latter is tainted with invasion and colonization.

Part of the problem is that we don’t really believe in the Federation (or more likely, we don’t understand or know enough about it). Queensland and New South Wales were initially cold to lukewarm about joining the Federation, and Western Australia only came around once the Constitution Act was passed in 1900. (There’s even a argument to suggest that New Zealand may have joined the Federation before or instead of Western Australia, but I’ll leave that to the historians.)

More significant is the fact that the past two years have revealed considerable cracks in the Federation. States have been taking very different approaches to the current pandemic, with both Western Australia and Queensland at times acting as if they had already seceded. We’ve seen huge inconsistencies in how each State and Territory has responded to Covid – there was little to no national consensus on defining “hot spots”, “red zones”, “clusters”, “complex cases”, “mystery cases” or “close contact”. The respective public health measures and administrative responses were also very different, leading to confusion, frustration and anger over external and internal border controls, hotel quarantine, home isolation, track’n’trace, density limits, social distancing and vaccine roll-out. Overlay that with cack-handed management by the Commonwealth itself, and it’s easy to see why many people feel no love for Federation.

The former Premier of NSW let the cat out of the bag when she referred to “our New South Wales citizens”. Last time I looked, Australian citizenship is conferred at the Federal level, not by individual States or Territories. This Freudian slip just confirms the many fault lines that exist as between the Commonwealth and the States, and as between the States themselves. About the only thing that unites Australians is when a national sports team is competing at international level…

In fact, there are many areas of public policy, administration and infrastructure where the States and Territories adopt different standards and models – for example, we don’t yet have a fully integrated national energy grid, daylight savings results in five different time zones during summer (as opposed to the three during winter), and there are differences in parliamentary structures (bicameral vs unicameral) and election cycles.

The issue of Federation is also fraught from a financial and budgetary perspective. States and Territories have limited options for raising their own revenue, namely payroll tax, land tax, stamp duty and licenses. While they can generate revenue from commercial ventures such as public-private infrastructure projects (and from mining and resources royalties), the bulk of their funding comes from the distribution of Federal income tax and GST (sales tax). (Or they borrow in the public debt markets.) And of course, there is always some aggro on these allocations at COAG meetings (now known as National Cabinet….).

It might also be the case that just as we have too many professional football codes (none of which are truly “national”), we have too many layers of government for a population of just 25 million people (Federal, State, Local). Given that Local Government is not actually provided for in the Constitution, and given the antagonism between States, perhaps there is a case to be made for change. Most people live within a few coastal conurbations. Moreover, many people identify closely with their city, region or rural locality, even more so than their State. Think of border twin towns such as Albury-Wodonga on the River Murray and Tweed Heads-Coolangata on the East Coast. So, why not abolish the States and Territories (as well as dismantling the current local government structure), and instead establish functional municipal, regional and rural governments that are more representative of their local communities, and which are charged with distributing resources and coordinating public services on behalf of the Commonwealth (especially in the areas of health, education, welfare and transport).

One thing is certain: Australia needs to sort out the Constitution before it can re-visit the idea of becoming a Republic. Apart from the issue of a Treaty for indigenous recognition and native title land rights (and resolving the anomaly that is Local Government), the structure of our political institutions also needs reforming. Having Federal elections every three years reinforces short-term policies. Consider also the negative impact the current state of the party political system has on the quality of policy debate and implementation. Look also at the wonky versions of proportional representation we have in the form of single transferable votes and dodgy preference deals, plus Senate party slates and “Captain’s picks”.

This all means that even though we may think we are voting for individual candidates to represent our interests in Parliament, we are in fact voting for party machines. Those party structures are rife with factional warfare, internecine disputes, branch stacking and shady backroom deals – hence, we don’t directly vote for the Prime Minister (who can be rolled by their own parties, as we know to our cost), and we can’t hold our constituent representatives accountable except at the next Federal election.

Even if we acknowledge that we are voting for a candidate based on their stated party allegiance, there is no guarantee that they will vote (or even stay) with that party, so we don’t get the representation we voted for. Add to the mix the continued problems with party donations, campaign funding, Parliamentary lobbying and electoral pork barrelling, and it’s no wonder we have given up on the party political system and have lost all respect for our elected representatives and their party leaders. Plus, the perpetual rent-seeking from entrenched vested interests (coupled with monopolistic institutions and cozy industry duopolies) means there is inertia in favour of this status quo.

The proposed model for a Republic seems to be predicated on having a President as the Head of State (to replace the British monarch and their local representative in the form of the Governor-General). Beyond that there seems to be little agreement on how the the President will be appointed, or what Constitutional and/or political powers will be vested in them. Recent proposals for a nomination and election process have been met with both support and opposition from former Prime Ministers. But until we define what role the President will perform, we can’t begin to think about the process for their elevation to the position.

For example, is the Presidency going to be a mere figurehead, with no decision-making authority apart from confirming the Will of Parliament? Should the President be directly elected via universal suffrage, under a single, popular vote and “first past the post” method (rather than via a fudged proportional representation model? If we have an electoral college system (as in the USA), who gets to participate, how are they appointed and how do they get to cast their votes? How long should the President hold office? Is the Office of President designed to “keep the bastards honest” in Parliament, or to intervene when the Parliamentary party system breaks down, or to sue the Commonwealth on behalf of affected citizens when the Constitution is breached? Will the President have any role in forming public policy, or negotiating international treaties? Or will the President be voted in under a popularity contest, and as a reward for past public service, kind of like a plebiscite for Australian of the Year?

Another thing may also be certain: the timing (and likelihood) of Australia becoming a Republic will depend on the politicians of the day, how they advocate for it, and the model they propose. Because wrongly or rightly, the form and substance of the Republic will be linked to the character of the Prime Minister who has to invoke the necessary Constitutional reforms, and the nature of the Government they lead to implement it. Which is a large reason why the Referendum on the Republic failed last time – the proposed model was not clear enough to the electorate, and Australian voters may have feared the outcome would result in a President who did not represent them, or who did not reflect the choice of the people. A bit like our recent run of Prime Ministers, and the revolving door at the Lodge!

Next week: Gratitude and the Great Recharge