Governance in Tech: The Simple Case for Awareness
“Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.
The sentiment regarding corporate governance in the Gulf region may vary depending on the specific country or company in question. In general, the Gulf region has made significant progress in recent years in improving its corporate governance practices. Many countries in the region have implemented new laws and regulations to strengthen corporate governance and increase transparency.
For example, the United Arab Emirates (UAE) has implemented the Companies Law, which sets out the legal framework for the formation, operation, and dissolution of companies in the country. The law also includes provisions on corporate governance, such as the duties and responsibilities of directors and the rights of shareholders.
Saudi Arabia has also made efforts to improve its corporate governance practices, including the introduction of a new Companies Law in 2015 and the issuance of new regulations on corporate governance by the Capital Market Authority.
Overall, the sentiment towards corporate governance in the Gulf region is generally positive, as governments and businesses recognize the importance of strong corporate governance in promoting investor confidence and long-term sustainability.”
Would you believe it if I tell you that the above text is generated by Artificial Intelligence (AI)? If you are somewhat tech savvy, you would not be too surprised. However, if you are the average person (like me), it will take you by a surprise. Thanks to the constant decentralization and commercialization of technology you can try it yourself on openai.com (chatGPT). When I asked it about Corporate Governance (CG) sentiment in the region (Arabian Gulf), I was not expecting an answer as the above which made me even more curious to ask the AI what drove this positive sentiment?
“There are a number of factors that have contributed to the positive sentiment towards corporate governance in the Gulf region. One key factor has been the increased awareness and recognition of the importance of corporate governance in promoting investor confidence and long-term sustainability. Many businesses and governments in the region have come to understand that strong corporate governance practices can help to attract investment and improve a company’s performance.
Overall, these factors have contributed to a positive sentiment towards corporate governance in the Gulf region, as businesses and governments recognize the importance of strong corporate governance practices for the long-term success and sustainability of companies in the region.”
Strikingly good! Isn’t it?!
The above brief conversation raised many questions about the future of governance globally and regionally. On one hand, some of us will get creative on applying this technology in our day to day lives (e.g., asking AI to summarize a lengthy book for you or do a piece of calculation on your behalf). On the other hand, others might utilize this technology to aid them in working around an existing system. For instance, in an educational context, many students have been using AI to cheat on their exams, to do their homework, and in some cases to reverse engineer exams to predict new ones. Such changes should invite educational institutions to think about updating their governance frameworks to stay relevant. How can AI creators and managers collaborate with the relevant stakeholders to limit such undesired utilizations? For example, an embedded footprint in the answers the AI provides can be used to distinguish them from those that are genuinely generated by humans. Similar to paper towns (fictitious towns on maps to protect the intellectual property of the map creator), we can think of various ways to govern the growing space of AI and technology in a broader sense. Maybe a blockchain technologies to govern all 3D printed objects to increase accountability of technology usage. The above are just examples that can be expanded to professional, academic, or even governmental activities in the different contexts of various emerging technologies.
This is particularly relevant to the region for its young population and technological appetite. According to the International Telecommunication Union (ITU), the Gulf States had significantly higher internet penetration above 95% vs. an average of 63.1% worldwide. Similarly, the World Development Report 2016: Digital Dividends, published by the World Bank Data, included a measure of digital adoption at individuals, businesses, and governments level called Digital Adoption Index (DAI). The Gulf States has also scored 71.3%, significantly above the worldwide average of 51.6%. These unique characteristics of the region makes it a fertile land for the development and implementation of technology corporate governance practices. Furthermore, the region is expanding its technological capacity by adopting state-of-art technologies and developing such technologies when such technologies does not exist. One such example is NEOM, a giga-project, that promises a cognitive city experience like no other city. Not long ago, smart cities were the way to go. Now the bar is set on a city experience that think for and with you.
I believe we are still in the initial stages of the wide adoption and integration of such emerging technologies in our day to day lives starting from our homes, schools, workplaces, government offices, airports and alike. I can’t help but wonder about when and how one should start to build better governance around technology. Integrating governance in early stages can minimize design and implementation costs in the future which is why it is critical to think of it now.
While this piece is not dedicated to discussing the benefits of having better governance which is time tested and documented, it might be helpful to follow what the AI did above in laying out two of the common benefits of a well-designed system of governance. Firstly, it increases the sustainability of good performance and results. This can be due to multiple factors but notably are the minimization of unfavorable instances (preventive) and the reduction in the cost of mitigating such instances through early detection (corrective). Secondly, as governance is somewhat relative, places with better governance always attracts better resources (human or financial). Having better governance gives the organization a competitive edge that can aid in attracting better resources in a time where both financial and human resources are very mobile globally and locally. I do encourage the reader to explore other unconventional benefits of corporate governance documented in literature. One can be surprised by the depth and breadth of the subject. For instance, Dan et al. (2011) examined firm level data across 31 countries documenting a strong positive relationship between discretionary non-financial reporting (CSR reporting) and analyst forecast accuracy. The paper was published in The Accounting Review, a top accounting journal. Many studies document similar findings. That is firms with that engaged in voluntary non-financial disclosure (a good governance signal) exhibited higher analyst forecast accuracy. This, in turn, leads to better capital deployment by both institutional and retail investors. The
After demonstrating the growing capability of technology, its regional and time relevance, and discussing some of the benefits of adopting a stronger governance, the reader might wonder about how we can go about it. While unfortunately I don’t know of an established playbook to quote from, I do believe there is a low hanging fruit to capture. Again, unlike other areas of governance, governance in AI, AR, VR, 3D printing and alike remains a vastly unexplored green field. However, my message to the reader is that we should not underestimate the power of simple awareness. Being aware of the importance of governance when adopting new emerging technologies will help the parent, inventor, entrepreneur, customer, supplier, or the regulator to stop for a minute and think. What can go wrong? How can I prevent it from happening or detect it shall it happen? What are the actions to take in various scenarios? This simple awareness I believe is the lowest hanging fruit to minimize the total cost of emerging technologies adoption and integration in our day to day lives.