WIRED: Social media CEOs hearing can’t defend their business model

When Clive Humby (while advising UK retailer Tesco on the use of data in their loyalty programme), invented the now overused mantra that “data is the new oil” he most likely did not anticipate that the analogy would extend to the negative consequences of the oil economy on the environment and society. As is becoming increasingly clear, in the wrong hands, data and the digital economy that runs on it can have far-reaching negative impacts.

The current congressional hearings in the USA – “Disinformation Nation: Social Media’s Role in Promoting Extremism and Misinformation” – have found their way into a discussion on the underlying drivers of behaviour in social media business models: If the business model relies on keeping users engaged for as long as possible, this has negative consequences for society on multiple levels.

One of the issues, which is not mentioned in the article quoted above, is that user engagement leverages many of the tools of the gambling industry in order to keep users engaged or, I daresay, addicted. The gambling industry is regulated because the risks and costs for society have long been recognised. What is noted in the article, is that social media platforms are incentivised to tolerate incendiary content as it is most likely to attract and retain user attention. These are just some of the negative societal outcomes that result from the basic business model employed by social media platforms.

If Congress succeeds with the threat to introduce a bill that bans the business model of “surveillance advertising”, it is targeting the basis of the business model rather than only addressing some of the negative outcomes that arise from the use of social media. While it is not clear that it will translate into practical action, this is one of the first attempts to address the cause of the problem rather than managing the symptoms.

Underlying this discussion is the fact that Congress seems to be grappling with rebalancing a governance problem and revisiting the scope and mandate of governance.

Governance in its simplest form is the management of trade-offs across different constituencies. The scope and impact of governance are, therefore, dramatically shaped by its mandate and the constituencies included. For instance:

• The negative reflections on the era of neoliberal economics (as reflected in e.g. “Economists’ Hour” by Binyamin Applebaum) may also be framed as a failure of governance in focusing on maximising the returns to one stakeholder group (shareholders) over all others, rather than just the failure of an economic model.
• Through the phenomenon of “vaccine nationalism,” the pandemic has revealed the tension between governance with a national mandate and considerations that extend across borders.

Over the last few decades, the objective and mandate of governance have evolved substantially and the discussion on the digital and data economy is going to push it even further, as it cuts across traditional borders and governance mandates.

In the corporate governance space, the governance mandate was traditionally to manage trade-offs across shareholders, management, employees and clients. Increasingly, climate and social considerations have pushed governance processes to extend its mandate to include the broader society and environment and even future constituencies (in the case of climate).

We are also seeing requirements on corporate governance that extend beyond the reach and mandate of national-level governance. This happens where national governments are requiring companies in their jurisdiction to consider e.g. labour impacts in subsidiaries operating in other countries or where data regulation is claiming ownership and regulatory oversight of data in subsidiaries operating in other countries and subjecting it to the governance of the head office country.

Ultimately, we are still grappling with appropriate forms of governance for this global and multi- country phenomenon of rapid digitalisation. The complex issues seem beyond the ability of individual institutions or even industries and governments to shape, let alone govern. Nonetheless, digitalisation (and the linked use of data) is going to shape economic and human outcomes for decades to come.

Cenfri is partnering with GIZ to tackle aspects of this through an initiative focused on exploring the nexus of digital governance, digital financial services and the SDGs. The initiative will include consideration of key issues such as: digital identity, digital financial services and taxation; open data and the future of financial services; digital currency risks and opportunities; cybersecurity and fraud; transparent value chains; and digitising fair work principles.

If you are thinking about these issues, we would like to hear from you. We are definitely not close to any answers yet, but are we asking the right questions?

This article was first published on Doubell’s LinkedIn profile.