Facebook, Apple, Google and their ilk are at the crest of the wave of the digital revolution that has swept across the world. Many of these multinational corporations are billionaires or trillionaires with more wealth than some small nations. Apple recently passed the trillion dollar mark, and Google and Amazon are not far behind. Their significance extends beyond their wealth: Big Tech’s platforms and products are interwoven into our lives.
Recent events highlighting the access to social media platforms by extremists, and live-streaming of awful events including the terrorism at the mosques in Christchurch give cause for grave concern. The terrorist attacks on the mosques may prompt Australia to force platforms to moderate extremist views mediated through their platforms. Regulation is however often responsive and piecemeal: international coordination of responses is rare.
The ubiquity and wealth of Big Tech corporations can make them seem untouchable and beyond the reach of the regulators of many nations including New Zealand. Tax a Big Tech corporation more tax than it wants to pay, and it will move money or operations elsewhere. These legal persons have more mobility than many natural persons. Scold a Big Tech corporation for its failure to mediate content, and like a sulky child it falls silent and appears to do nothing.
Big Tech does, however, have an Achilles heel. This tender spot relates to value and the difference between Big Tech corporations and other multinationals. This is how it goes: In essence, any corporation is an aggregation (or collection) of different forms of value captured by a ‘legal person’. ‘Legal person’ is a term used in law to describe an individual, company, or other entity treated by the law as a person able to transact and incur obligations as an individual. Value can be enclosed legally.
Historically, many of our ancestors were victims of the enclosures by British landowners in the last millennium. Land was enclosed because landowners could aggregate land as value, creating scale and efficiencies that made the generation of greater wealth possible. In the same way, the ‘enclosure’ of different forms of value or capital in a legal person means corporations can scale up and combine that value to generate wealth.
Scold a Big Tech corporation for its failure to mediate content, and like a sulky child it falls silent and appears to do nothing.
Where Big Tech corporations differ from other multinational corporations is in the types and ratio of value they typically capture and utilise. As pointed out in an Economist article on March 25, Don’t judge a company by its book, in the digital age a firm’s value lies in its reputation, processes, and relationships with customers and suppliers. These forms of value can expand very rapidly, as we have witnessed in the digital age. But value based on reputation and relationships can also evaporate very quickly, and here lies Big Tech’s Achilles Heel.
A Victorian industrialist confronted with the vagaries of manufacturing would have drawn some comfort from the sight of the factory he surveyed from his big house at the top of the hill. The forms of capital captured by the 19th century limited liability company were tangible; fixed capital assets and current assets that were part of its book. The value was in bricks and mortar, plant and stock. Much of the value of a 21st century Big Tech corporation is amorphous and intangible, and therefore more vulnerable to the environment it operates in. Reputations can be lost as swiftly as they arise. Increasingly, we regard Big Tech corporations with suspicion; that was not the case five or even two years ago.
As relationships with customers and advertisers generate much of the value of Big Tech corporations, the suspension of advertising by major banks and others on the Facebook platform, and the call by the Association of New Zealand Advertisers and the Commercial Communications Council for change or suspension by international advertisers, have real clout. And it is highly likely that Facebook, though silent so far, is listening.
A recent project carried out by a group of us at the University of Auckland on Boards as Leaders involved interviewing directors on boards of many leading companies in New Zealand. What became strikingly clear was how boards do not operate in a vacuum. Instead, when acting in the interests of the company, directors are acutely aware of, and influenced by, the legal, social and economic environment of the company. Optics, brand, how the company is perceived, matter. The board’s leadership role involves acting as guardian of all forms of value captured by the company – and safeguarding value extends beyond preserving financial capital and maximising profits at all costs. Reputation has value, and relationships with clients and investors are critical to a company’s success.
For Big Tech corporations like Facebook, reputation and relationships are primary forms of value. These forms of intangible value are soft. The third digital age links us all in ways contemplated, in the 20th century, only in science fiction. Our wonder at how technology can transform our lives is maturing to concern about risks inherent in platforms that create channels for a dark underbelly of humanity to link and credentialise views that might previously have remained isolated and concealed.
Big Tech corporations are increasingly not regarded as facilitative or even benign, with their reputations and those of their founders suffering as a result. For Facebook, value attached to reputation is dwindling and, if we as clients, consumers and advertisers move elsewhere, it will be vulnerable. A world without Facebook seems unimaginable. But a generation ago, a world with Facebook was beyond the contemplation of us all. One certainty of the third digital age is rapid change: by paying insufficient attention to reputation and relationships, the CEO and Board of Facebook risk all.