Facebook is wheezing under the onslaught of angry politicians and a skeptical media. A proverbial canary in the technology coal mine that seems not fully aware of what afflicts it.
Corporate myopia at times like this is dangerous and can leave a company flailing to respond effectively. I know as I experienced this first hand over a decade ago when the banking industry blindly stumbled into the financial crisis.
In fact, there are a number of interesting parallels between the banking industry in the “aughts” and tech today. What the banks went through then offers some valuable lessons that are relevant to many in tech today.
First, consider some of the similarities. Like tech, banking enjoyed a multi-decade secular bull market that led to an excessive focus on growth and little else. The continual success triggered a myopic industry-view that banks were only forces for good in society. “Doing God’s work” as the CEO of Goldman Sachs once observed in an interview — although how anyone thought a “CDO squared” served a societal purposed strains credulity.
That mindset created a long list of poor business decisions by the banks (subprime mortgages, credit derivative swaps etc.) that became a major burden in the aftermath of the crisis. There is no statute of limitations on bad corporate decisions, and the “drip drip drip” disclosure of past business practices became fuel for further outrage. Outrage that amplified an echo chamber of the media and politicians that spiraled rapidly out of control.
The banks quickly learned that policymaking prompted by a company’s or industry’s behavior is a very dangerous and uncontrollable place to be. Perception begins to play an outsized role in policy formulation. Perception that can be more influenced by simplified media narratives of the echo chamber than by complex policy arguments. This resulted in a lot of negative regulatory changes for bank business models with significant economic impact — and not all of them intended.
For the banks, it could have been worse. A lot of proposed policy in the aftermath of the crisis was constrained by the role of banks in society (i.e., as desirable as it was for many politicians, shutting down all the big banks was never a realistic option). However, tech must understand that any business model can be crippled or destroyed by a single piece of legislation.
While tech will never face a crisis as encompassing as the financial crisis was for the banking industry, it does struggle with a greater degree of myopia than the banks did. Unlike the banks, tech’s growth occurred with virtually no external constraints to manage. No meaningful regulation. No legislative hearings. No skeptical media coverage. The industry simply never developed the muscle memory to confront an “analog” world of politicians, regulators, frustrated investors and a skeptical media.
It is in tech’s self-interest to pierce its myopia —it has to begin to understand how its business affects the world beyond an exclusive focus on growth. This is an issue for more than just the social media giants as technology’s disruption is accelerating. For decades there has been little concern because society’s focus was generally on positive aspects of technological disruption. Negative disruption was generally ignored (or blamed on globalization). However, that “gilded age” seems to be ending. Even the Oxford Dictionary picked “techlash” as a runner up for word of the year in 2018.
So a word of advice — take action now. Do not underestimate the potential risks many a tech company may face if their businesses prompt a cycle of media scrutiny and potential political backlash. And do not assume it will never happen to any particular company. I doubt Facebook envisioned its current imbroglio just a few years ago.
While suggestions about how to do that could likely fill volumes, one piece of advice is to start at the top with the board of directors.
First, tech boards generally lack diverse perspective. Most tech boards are usually comprised of founders, other tech industry executives and venture capitalists. All successful individuals, but susceptible to ‘group think’ as they likely share the myopia that infects much of the industry.
Tech needs to bring in successful people from outside technology to strengthen their boards — business people, academics, even politicians, all of whom have experience in understanding how major companies find their place in a complicated world.
Second, boards need to be empowered. Adding new perspectives is pointless unless the board is strong and independent. An effective board cannot be a rubber stamp. Critical decisions left to a few with voting control can turn Kenneth Blanchard’s famous maxim that “none of us are as smart as all of us” on its head. Through sins of omission or commission, weak or myopic boards are more likely to make decisions that will serve the company poorly over time.
Smart and diverse boards are an invaluable resource to the management team in a world that will only get more challenging in the coming years as disruption accelerates and external scrutiny of tech inevitably grows. Founders must understand that a good board is not an impediment but a critical tool in supporting a company’s ongoing success.
There is no question that technology will continue to be a great transformative driver. However, nothing is written in stone that innovative ideas must succeed in our complicated world. Innovation can be constrained by an analog world of laws, regulations and perceptions. Many in the tech industry need to prepare for these challenges, lest their success be derailed.
While technology will likely drive us to a better destination, there is nothing to suggest the journey from here to there has to be a straight line. Some preparation today for the analog challenges that await will help smart tech companies minimize any potential disruption and continue to innovate and grow.