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Alibaba’s IPO and Distorted Corporate Governance

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Buried beneath the huge IPO valuation of Alibaba lie anxieties about its corporate structure, which though in a different form echoes those of corporations as diverse as Facebook and the Murdoch companies in denying full authority to stockholders. Whether though the traditional two classes of shares, or Alibaba’s somewhat original arrangement, you can own a share of the company without an equivalent say in how it is run.

There are arguments pro and con such arrangements. In the context of start-ups, the case tends to be that it is vital to keep the founder(s) engaged and at the helm even after capitalization and formal ownership become dispersed. The case with established corporations is more murky. There is significant risk attached to such arrangements, and they plainly fly in the face of any general considerations of good governance. It is as if the standard (and grave) difficulties inherent in the “principal-agent problem” become a platform for emulation and advancement. The sheer size and significance of Alibaba may perhaps raise awareness of this clutch of questions, which have come to notice mainly because of discussion of the location of the IPO. Some exchanges permit these arrangements, others do not, and trends seem to be going in both directions.

Given that transparency and general issues of governance are so central to investors’ concerns about the emergence of major Chinese companies on the global stage, no time is to be lost in building a consensus that the deviant approaches to capitalism of Murdoch and Zuckerberg should be eschewed and not seen as precedents for further prejudicing of good governance.

 

 

 

Alibaba’s IPO Puts VIE Structure in the Spotlight – Risk & Compliance – WSJ.

The Robot in the Room: Does Work have a Future?

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Many of us have been following a variety of press comment on the useful Pew report on the attitudes of “experts” to the Big Question: Will robotics destroy more jobs than it creates? Since the “experts” were split almost exactly down the middle, expertise in this and related fields would seem to provide no clear wisdom on the fundamental question. And that question of course goes way, way beyond there being a net deficit of job creation. If robotics does not result in a whole slew of new jobs, and jobs that can be done by the kind of people who are around, it is likely to destroy much of the employment economy.

There are many reasons why we should see this as an uprecedented situation, at root because in robotics we are creating not adjunct tools to facilitate human productivity but a fresh species of worker.

What is clear is this: From a risk perspective, the implications of one half of the experts being correct are cataclysmic, and should be preoccupying policymakers night and day. But they aren’t.

I raised some hard questions on this theme in my recent TEDx talk in Brazil. And I plan to keep coming back to them.

http://www.pewinternet.org/2014/08/06/future-of-jobs/

Five Rules as Facebook Goes Down; and what next?

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Image representing MySpace as depicted in Crun...

Image via CrunchBase

We’ve now had a number of these stories. Is Facebook really on the verge of becoming MySpace? It seems absurd on the face of it, as global numbers keep climbing and any company which can recruit over 1 billion users is in an enormously powerful market position. On the other hand, when numbers plateau or drop slightly – as these latest stats drawn from more than one reliable source suggest – it’s a handy reminder that not even Mark Zuckerberg’s clever creation lies beyond the effect of market forces. And, very specifically, beyond the logic of disruptive innovation.

Five observations, nay, emerging rules.

1.Whether seen as a bubble or not – the current crisis in the U.S. Postal Service offers a slow-motion parallel – Facebook is not forever. It is not “different this time.” True, some companies stick around for many years (though a comparison of top listed companies decade-by-decade is a revealing and sobering exercise). And we do need to face a special factor that I have suggested on more than one previous occasion: that the extent to which a company’s core technology and/or business model is digitally derived, that company will “age” faster. A disruption variable, perhaps. Think Built to Last – and add an accelerant.

2.Of course, Facebook’s very dominance has set it up as a target. Around the time of the IPO, I recall observing that the various global governance authorities in telecommunications, and indeed back of them the governments themselves, are unlikely to sit back while a single American company, controlled Murdoch-like and more by one individual, develops an essential monopoly of a major slice of global communications. Meanwhile, we have begun to see the slow growth of interoperability, which seems to me to ensure the doom of economic profit in social media – at least in so far as the business model depends on “social.”

3.While the lock-in impact which is the obverse of the network effect remains powerful –at least, sans more comprehensive interoperability – the entry of very large numbers of users into a multiplicity of platforms has begun to chip away substantially in this advantage which Facebook the first-mover monopolist has built. So, I was just chatting with my daughter in Google chat. She actually thought she was using Facebook. Whatever.

4.I have argued repeatedly that it is a thoroughly bad thing for Facebook and other social media to have chosen the IPO route instead of seeking innovative governance and financing models which would preserve the integrity of their alignment with their users and with their proclaimed social goals. Market pressures, and – as in this case – the increasingly intrusive and sometimes offensive presence of advertising, now interposed with messages from friends as well as making up that margin down the right-hand side, are substantially altering the Facebook experience.

5.It is of course the case as Facebook and others will argue that Western and some other markets have matured, which is a proper explanation for numbers in a report such as this. This raises various questions. One is whether “maturing” explains the drop in minutes of exposure to the site on the part of those who continue to use it. That is, does maturing mean that our interest has matured and is now declining (that is, we are getting bored)? For other, the success in China of alternative social media in the context in which many Western companies are blocked suggests that network effects are still largely confined to homogeneous language/cultural/social groups.

———————————————————————————

The bubble, at least, is contorting. We may feel for the people at HQ who live under market pressures to grow and grow and grow at a time when, that a remarkably, they have grown and come close to saturating the markets most accessible to them and in which there is a strong cultural match.

Next up?

Meanwhile, some of us expect before very long there to be the kind of services Facebook offers available either for a modest subscription or free of charge from entities designed on open principles for global interoperability, using innovative finance/governance models in which users have ownership, which will replace the flailing US Post Office and much else from the old economy with organizations that do not look as if they were built and governed by the high-tech grandchildren of Rockefeller, Vanderbilt, and Chase.

https://futureofbiz.org/2013/01/15/state-of-social-a-report-card-for-2013/

 

Numbers don’t lie: The Facebook bubble may finally burst | Digital Trends.

Cobblers and Their Lasts: Why Every Company Needs to Look Inward Before it Turns Outside

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Cross-posted from the U.S. Chamber of Commerce BCLC

http://bclc.uschamber.com/blog/2013-02-07/cobblers-and-their-lasts-why-every-company-needs-look-inward-it-turns-outside

 
February 7, 2013
AUTHOR

The old saying that the cobbler should stick to his last – his mold – suggests that we ought not venture far from things we work with day by day. That may have been true at one point, but it is no longer. And yet cobblers need to know their lasts, and take responsibility for them. Perhaps before they do anything else.

You have probably never heard of Giesecke and Devrient (G. and D.), a privately-held German company founded in the middle of the 19th century. G. and D. is chiefly a printer. But not just any printer. It’s a secure printer. They print banknotes. In a typical year, they print the banknotes for 80 nations and manufacture the paper for 40 more, over half the member states of the United Nations. Perhaps the next Oceans 11 remake will hit one of their warehouses. The Bourne Banknotes would track global financial conspiracy back to Bismarck. 

A year ago, I was asked to consult, as part of a group, for a new venture emerging from this high-tech banknote machine. While G. and D. has ongoing engagement in several more traditional CSR areas, the new project was to focus on core questions in the domain of its business technology, such as identity and the human-machine interface. It appealed to me as I was just winding down a three-year project on biometrics, identity, security and ethics, in which our Washington, DC think tank C-PET served as U.S. partner in a global effort and last May hosted a three-day event in which representatives of 20 nations, the Department of Homeland Security and the White House participated.

While in Berlin recently, I had the opportunity to listen in on one of the two expert groups organized around G. and D.’s new venture: famed cyborg Neil Harbisson sat around the table with G. and D. executives, philosophers, and tech gurus and on screen we had the legal adviser to the Spanish parliament and an outspoken American futurist. I’m not sure that in the course of the coming months the group will be able to solve all of the potential problems this venture faces. But it will better define what they are, and in the context of a company not only depending on (and innovating within) core emerging technologies, but located in the nation most aware at a formal, policy level of the obstacles of the tech/human interface, its conclusions will be significant. As I have said before, it’s all about the questions. And yet – the session was not all somber reflection. G. and D. had also commissioned its artists to let loose their imaginations in a whimsical exhibition of possible bank bill designs and samples were exhibited round the conference room. My favorite was the series based on Alice in Wonderland. (Which I do not intend as commentary on current U.S. or European economic policy initiatives!)

CSR in the 21st century can take many paths. Much of the field is still old-fashioned philanthropy in response to crises, which may or may not follow the business model of the giver – and is welcome and wonderful either way. Some is reaching out to Michael Porter’s prophetic vision of “shared value,” in which there is full integration with the business model and bottom line. Then there are points and initiatives in between, like G. and D.’s recent effort, and I believe there should be a lot more like it.

Whether or not you believe Porter’s hypothesis, if you are serious about CSR, branding, long-term social connectedness, your company must examine the core issues of its business and figure out how they interface with society’s emerging issues. They may relate to technology, and increasingly they are likely so to do. But whether or not that specific trend is the case, it will only serve your long-term business goals as well as the social good to develop ideas, strategies, and projects that directly connect with the broader cultural trends — especially at its pressure-points, where there is controversy and need.  G. and D. has begun to do that with this fascinating new venture, and it will only benefit them and the rest of us along with them. I am privileged to be associated with it.

State of Social: A Report Card for 2013

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State of Social: A Report Card for 2013.

At the outset of 2013, the “social” revolution is proving messy. Here’s a report card and some predictions for the remainder of the decade.

 

  1. SOCIAL COMPANIES ARE NOT SOCIAL. Our lead social efforts, led of course by Facebook, not only fail to grasp the subtleties of social but are among the least social companies on earth. Facebook, run with all the social finesse of an old-style oil company, has in the process not only doomed itself but damaged the social idea by its comprehensive failure to align that idea with its values and corporate structure (see 5).
  2. COMPANIES DON’T CARE. Major corporations have demonstrated an almost unbelievable level of disinterest in social. While most (80% of F500?) have finally got around to building a social network presence, the number of CEOs and other C-suite execs who are engaging personally in the social revolution is tiny. No-one rivals @rupertmurdoch’s dive into social. Barely a dozen more top CEOs have bothered to try. Opportunity here is indescribably big (see 6, 7, 8).
  3. LEADERS HAVE HARDLY BEGUN. The same is true in government. While many entities at all levels have finally developed a presence, very few leaders have grasped the revolutionary opportunities that have come their way. Newark mayor @corybooker stands out as unique. Member of Congress @darrellissa is close behind. @picobee has catalogued world leaders with Twitter accounts; very few give evidence of personal engagement, and almost all of it is stage-managed, like the “BO” tweets. Booker is the model for 2013.
  4. THE PRIVACY BOMB. The privacy/monetization interface remains unresolved and threatens to destabilize the entire effort. Social companies rely on user data to sell ads, one way or another. They assume that users do not much care. Users, for their part, generally lack the sophistication to control complex “privacy” controls. So risk goes up, and the perhaps naïve idea of social as a free service that would safeguard our stuff and treat us with respect has withered. Social-as-a-service, with fees, has – curiously – yet to be seriously tried. (It will come.)
  5. NO ALIGNMENT. The originality powering many of the myriad social products has yet to be matched by originality in governance and financing. Yet alignment between social as product and the values and structure of the companies that develop and host is crucial. A social enterprise or non-profit model is plainly appropriate. Yet the standard path has been IPO. This ridiculous disalignment will destroy the current leaders and offer a remarkable opportunity to the next wave.
  6. STRATEGIC SOCIAL WILL WIN OUT. It may be inevitable that the strategic significance of social in driving change through innovation will be resisted by organizations for whom old-style control issues are everything. The impact of social in aligning front-line employees and their own values with clients and potential clients suggests a concept foreign to the traditional corporation: that employee (personal) values and corporate values need to be related. It also offers a challenge to a core principle of the corporation: that the organizational boundary is sacrosanct, to be crossed only in the context of risk-controlled contractual arrangements. Social breaches that boundary. In the process, it offers the corporation the possibility of radical shifts in culture that will drive innovation and change. But it cannot do so within the context of the high-control mechanisms of the traditional functional organization. Strategic social offers high-value, high-risk change by aligning the organization with emerging markets and generations. Companies that find ways to harness these forces will drive ahead of their hidebound rivals (see 7, 8).
  7. CEO, C-SUITE, INCOMPETENCE. Drilling down into F500 social incompetence, we meet both defensive C-suite execs who hide behind generational barriers and consign social engagement to junior customer service and marketing roles; and the standard structure in which the CIO still reports through the CFO as if digital were the provision of typewriters and dictaphones to be supplied at the lowest cost. There is now no organization in which the CIO function is not central; the CIO is the closest collaborator of the CEO. Those who grasp this principle will win out.
  8. THE CIO CRISIS. The evidence is clear that very few CIOs are personally engaged in social. They need to be replaced. This is nothing to do with Klout scores (which I continue to regard as ridiculous), and everything to do with fundamental competence. One of the virtues of functional management (it has vices) lies precisely in the fact that C-suite execs are experts in their fields. A putative CIO who lacks serious social competence should not be short-listed. One who is in position should be fired.
  9. SOCIAL NETWORKS WILL CEASE TO COMMAND ECONOMIC PROFITS. When the second wave of social networks moves into place, supplanting Facebook and some others (which may of course continue as profitable, if much less valuable, enterprises), there will be little economic profit to be made. While not all such organizations will be non-profits or mutualized – some will certainly be profit-seeking social enterprises, and others will have new models we cannot predict – the combination of low entry barriers and the utility function of social will ensure that the thrills of the early IPOs, some of which will lead to large capital losses, will not be replicated. As social becomes seriously useful, integrated into communications and decision-making in all enterprises and disrupting as well as innovating in the process, it will no longer have novelty value; and aside from niche markets there will be no economic profit for first movers.
  10. ECONOMIC VALUE WILL BE DELIVERED BY SOCIAL IN ALIGNMENT. The coming decade will see value of several kinds emerge from the meshing of social with increasingly accurate realtime translation software, transparent accounting systems, digital health, deep-rooted innovation systems that are socially driven across organizational boundaries, the workings of government, and other seeming disparate efforts. Before decade’s end each of these will be deeply integrated into next-wave social, delivering extraordinary value that is integrated into major economic engines and not supplemental to them.

Steve Jobs dies; a generation ends

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I never met Steve Jobs. Never even tried. I now regret it, of course. Even to shake a hand and chat for five minutes offers a connection unmediated by the various departments of the press. And I have done that with all kinds of people. But he’s gone, and he’s gone younger than I am, and my mortality and admiration and strategic sense are intermingled in a manner I find disturbing. I don’t think there was anyone who in such a practical way grasped the future – the near future, but the future – and found out how to monetize it using his own imagination and the marvelous skills of those he drew to him. Who else has leaped ahead of the focus group and been glad of it? Who else has produced packaging –packaging! – you feel you must be an aesthetic criminal to discard?

A second generation begins today, October 6. The “digital revolution” that the naive ones of the earth believe has happened and that has just started to find traction – the digital revolution is now into Phase II, post-Jobs, an exploration of the middle distance (10-15 years, which will always be our benchmark) as we contemplate our current competencies and what they will in due time entail. But it is indeed today. There is no comparable starting-point. And while the prophets among us tend increasingly to say we are going to live forever, or close to it, the death of the digital generation’s greatest man at 56 brings us back to the benchmark of human mortality. A mortality he discussed, as few do today, even as he prepared the way for those he knew would live on into a distant future denied to him by the interaction of his pancreas (what’s a pancreas? he once asked) and something called cancer that, despite all our efforts, remains a disease we can do surprisingly little about.

What better way to frame what lies ahead? We shall not become immortal (sorry, Ray). Our lives may indeed extend longer, perhaps much longer. Let’s learn from the example of the iconic figure of our Moore’s-Law driven technological times, who learned of his own mortality and dared speak of it – as he prepared us for immortal Siri and the challenging marvels that will lie ahead.

So, be thankful for a man who broke every mold. And let’s embrace our frail humanity as we also engage the extraordinary prospects for which he helped prepare us.

Posted 6th October 2011 by 

Please may we have a social Social Network?

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Please may we have a social Social Network?

So who enjoys irony? Facebook is one of the least “social” companies on the face of planet earth. In fact on any governance spectrum you will find it jostling with the most archaic of our corporate behemoths. I almost compared it with News Corp., and in terms of board/share control issues there are strong parallels. But even @rupertmurdoch is a serious tweep. He gets social in a way we have yet to see any evidence that Zuck does. Read that sentence again, slowly.

I have written before of Facebook’s fundamental problems – interoperability is coming way before this Calif. corporation is permitted to become the new

Facebook logo Español: Logotipo de Facebook Fr...

Facebook logo Español: Logotipo de Facebook Français : Logo de Facebook Tiếng Việt: Logo Facebook (Photo credit: Wikipedia)

global comms everything. Before then, it will go the way of Yahoo and MySpace as barriers to entry keep collapsing. And what was once cool is already becoming infested with grandparents. In general, the more digital a company’s biz model, the faster it will age.

But this is a separate issue, and it would have been perfectly possible for a Facebook-like-entity to emerge run by people deeply imbued with the social idea. Hard to say this, as their guy demands enormous admiration and has mine, but in today’s corporate America MZ is a leader in anti-social as well as old-style board (or rather non-board) governance. In a world of growing alignment, this is 180 territory.

So the news that Facebook’s rather curious experiment with democracy has, through the democratic process itself, as it were, been abandoned, is a joke wrapped in a joke. And Facebook’s protestations to the contrary (see the great article below from Gigaom) just make it worse. There is an indefinite number of better ways in which Fb could have arranged its entry into the world of democratic societies. The approach they have taken lies somewhere between Napoleon and pre-Arab spring MENA.

Which raises a question that is much more interesting: when shall we see the emergence of corporate entities operating in the “social” space – a space that we know will define our relationships social, cultural, commercial, political, from now on – that both understand and choose to act in alignment with the social idea?

My sense is that while this may not be true of corporations delivering business in other sectors – some of which are slowly being attuned to the social idea – for social media enterprises there is no way around a governance structure that is aligned with social and therefore that cannot simply replicate the IPO-driven start-up culture or indeed any conventional model in which the users (who, of course, may or may not be the paying customers) are fundamentally distinguished from the owners of capital and their agents in management. That is, we need innovative approaches to corporate financing and governance that align with the social model.

At one level, this is hardly revolutionary. One of the most interesting features of C19th industrial revolution societies was the emergence of mutual models. In the UK the co-operative societies, still successful wholesale/retail businesses, and building societies, which demutualized into commercial banks during the past 30 years. In the US, credit unions remain. I’m not proposing these as templates. But one can readily understand why Facebook could tolerate the democratic principle only so far as the market would permit the BOD to hand responsibility to groups of users. Hence the ridiculously high voter turnout required, hundreds of millions of people to address technical issues of privacy, which has given the whole effort a pantomime character. And (sorry, but this is true) made democracy look like tomfoolery at a time when respect for democracy as culture and not simply narrow process lies at the core of the global crisis of government and legitimacy, from Russia to China to the Middle East.

So: I’m waiting for a social social network. It may be too much to hope for Twitter to take the lead, though what a superb example it could offer. Aside from social biz approaches to financing, or old-style mutualization (all active tweeters after two years get X shares . . .), perhaps the Gates Foundation will buy it out and establish a user-run governance model (and users include names like Dell, Murdoch, and Branson; the top business brains on the planet hold this network in affection and find serious value here).

Point is: We need social social networks. Facebook is pre-eminently not that. Which is one of several reasons why its future is not all that bright.

Why it’s a good thing that Facebook has given up on democracy — Tech News and Analysis.

via Please may we have a social Social Network?.

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Amazon’s Big Move into B2B

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The dynamics of B2B have always operated so differently to B2C, aside from the overlap at OfficeMax, that Amazon’s intrusion looks surprising and odd. But they said that back when to buy a book you generally got the bus to a bookstore.

This b2binsights.com post offers a brilliant expo of the issues and why dismissing the strategic impact of this move (OK, OfficeMax by mail) would be a big, big mistake. And there are lessons here for us all . . . .

Read it.

How Amazon Supply Affects Your B2B | B2B Insights Blog.

via Amazon’s Big Move into B2B.

$1.3 Trillion from Social, Says McKinsey. BUT . . . .

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English: McKinsey matrix as described in McKin...

English: McKinsey matrix as described in McKinsey Quarterly Español: Reproducción de la Matriz de McKinsey según se describe en McKinsey Quarterly (Photo credit: Wikipedia)

This looks a very interesting projection. The value is mainly to be found from better productivity that will come from better collaboration using social tools.

All this may be true. But the wild card lies in what I term strategic social – not incremental tools for biz collaboration (which are important) but the much messier and so far little engaged possibility of public social media tools such as Twitter and Facebook. In general companies have seen presence in these media to be useful for advertising and customer relations efforts, and delegated that presence way down then line. The prospect of values alignment between customers, employees, and the corporation; and the ready flow of information via relationships across the organizational boundary; have been little tapped and not that much noticed. My sense is that the value lying there is in fact much greater, as it can, should, may, drive innovation and culture change within the company. Culture change/innovation is where, prospectively, all the value lies – in the context of rapid change.

Evidence of very low levels of hands-on engagement with social in the C-Suite suggests this value is a long way from being realized.

McKinsey Says Social Media Could Add $1.3 Trillion to the Economy – NYTimes.com.

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5 stories that make me worry about whether the future has jobs

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The seal of the United States Department of Labor

The seal of the United States Department of Labor (Photo credit: Wikipedia)

Kurzweil, Krulwich and Ptolemy

Kurzweil, Krulwich and Ptolemy (Photo credit: Daniel Williams)

English: PR2 Robot at Willow Garage in Menlo P...

English: PR2 Robot at Willow Garage in Menlo Park (Photo credit: Wikipedia)

Five quick stories

1. I sat down for lunch a few months back on a sunny Silicon Valley day in Menlo Park with two partners from a global law firm who work with clients in the Valley. There were various things on my mind – Washington/Valley issues, potential collaborators for my nonprofit, the weather and the wine. But that was not the conversation. What they wanted to talk about was, as one put it, When are we going to come up with innovations that create jobs rather than destroy them? You could have knocked me down with a chip.

2. Fast rewind to one of those excellent Singularity Institute conferences that the Kurzweil-inspired network hosts. They are usually on the west coast; I think the one I am recalling was in San Jose. Early on the program was Marshall Brain, founder of famed website How Stuff Works. He threw up on the screen that Department of Labor job classification form we all know, and went down the list. In his view, around 50% of the jobs in the U.S. economy could be destroyed by robots. He was heckled.

3. Fast sideways to a visit a year or so later to the OECD in Paris, where I sat down with one of their top S and T officials and discovered he had just returned from a visit to Japan. Japan, where the plan is for retirees to get a pension – and a humanoid robot, as nursing aid and companion.

4. Then, in this journey through space and time, to Washington, DC, which as some of you will know is the U.S. federal capital where allegedly responsibility is taken for key dimensions of our future well-being. A top official of the Dept of Labor assured me there was no-one on the team focused on the AI/human robotics/employment issue.

5. Some time later I was on the phone to AFL/CIO. Same there. In the case of the labor unions, I suggested everyone consider stopping whatever else they were doing and work on this issue instead . . ..

Five stories. They do not amount to an argument, and if anyone has just loaded with “Luddite” please sit down.

I know that disruptions have happened before, though the nature of our Moore’s Law experience is that they are now getting very fast and disruptive at increasingly fundamental levels (reflect on the rapidity with which such smart enterprises as RIM and Nokia have come close to collapse). I do not know how fast our economy can innovate its way into the development of huge slews of jobs which have been taken out, class by class, through the advance of digital into the higher echelons of AI and robotics.

What I do know are three things: This issue is huge. Almost entirely unexamined. And urgent.

Here’s a neat piece from Vivek @wadhwa, one of our most provocative and smart thought-leaders, arguing that in China robotics is set to destroy manufacturing and enable us to repatriate what we have outsourced. Yet to the extent that this is true, what follows for this nation? Just asking . . ..

My convo with Vivek about innovation: http://c-pet.org/?q=node/93

My Napa panel with Vivek and others on U.S. competitiveness: http://www.techpolicysummit.com/2012/06/looking-ahead-investing-in-americas-competitiveness.html

The End of Chinese Manufacturing and Rebirth of U.S. Industry – Forbes.

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