Facing the stewardship challenges of technology- and data-driven enterprises
Updated: May 16
by Gordon Myers, Former Chief Counsel of Technology and Private Equity of the International Finance Corporation
Few businesses can hope to compete without making effective use of data and technology. These use cases include technology- and data-driven assets and applications, such as social networking platforms, artificial intelligence-driven marketing and decision-making, decentralized blockchain-based applications, and the use of proprietary and big data mining and analysis. But while application of these technos logies increasingly figures prominently in strategic planning, corporate managers and Boards are only belatedly coming to appreciate how much the enthusiasm this brave new world generates needs to be tempered by thoughtful understanding and systematic identification, measurement, monitoring and mitigation of the significant risks they present. Investors are perhaps even further behind.
Valoris starts from the premise that governance, stewardship and sustainability are essential to long-term investment returns and successful enterprises. Effective investor stewardship requires embedding strong governance, and systematic consideration of environmental and social factors, at all stages of the investment decision-making process. Indeed, the key ESG benchmarks, such as IFC’s Performance Standards, were developed in part to respond to increased pressure from the public and civil society, including litigation and reputational risks, that threatened the license to operate of development institutions and their partners and investees.
The projects triggering ESG concerns when the Performance Standards were first formulated were typically large-scale “hard assets” operations, such as power plants and other infrastructure, that generated similarly large impacts and physical footprints. But this landscape has significantly changed. In their recent book, Governance, Stewardship and Sustainability, Mike Lubrano and his co-author, George Dallas, cite a recent Ocean Tomo study suggesting that 90% of S&P market value is generated by intangible assets. As Dallas and Lubrano note, the extraordinary growth in importance of intangible assets reflects in large measure the increased importance of data and intellectual capital to 21st century enterprise. This, even though intellectual property and similar digital assets are not yet specifically accounted for on company balance sheets.
Yet, even a casual reading of the financial press will show that these new business models demand more governance and stewardship attention, by both managers and investors. The risks posed include protection of data critical to the business, pressure from governments and stakeholders demanding accountability for unethical data practices, use of data and technologies for non-transparent purposes, and misappropriation of technology assets core to company value by insiders and national actors. Indeed, significant efforts have been expended (including by this author) in developing multiple and overlapping codes of conduct, ethical principles, and “trust” approaches intended to assure public confidence. Regulators are also issuing (and often enforcing) governance and disclosure standards, guidelines and expectations for management of these risks, in some cases (such as the U. S. Securities and Exchange Commission and New York State’s Department of Financial Services) expressly calling out technology governance as within managers’ and directors’ fiduciary duties.
The need for leadership in applying investor-driven stewardship principles to the risks posed by new technologies is then evident, if only to avoid a fragmented and burdensome compliance regime. But in the experience of this author, even DFIs have not yet integrated these risks systematically in their ESG frameworks, or in their governance frameworks, or their due diligence frameworks, although much thoughtful work is underway. Perhaps the perceived low physical impact and high national prestige of innovation lessens the urgency of developing concrete guidance that would so clearly benefit industry, investors and the public. Whatever the case, this author urges Valoris’s clients to take a different view: To include in the application of Valoris’s governance, stewardship and sustainability approach a rational and realistic standard for technology adoption, whether leveraging IDB Lab’s fairLAC initiative, or other emerging standards from the Institute of Electrical and Electronics Engineers (IEEE), the National Institute of Standards and Technology (NIST), or elsewhere. The benefits to the public, to industry, to DFIs’ own license to operate, and to the sustainable adoption of critically needed innovation, are abundantly clear.
About the Author
Gordon Myers recently retired as Chief Counsel and Head of the Technology Business Risk division of the International Finance Corporation, a member of the World Bank Group. The views expressed herein are solely those of the author, acting in his personal capacity, and may not reflect the views of IFC or the World Bank Group. Gordon was the global lead counsel for IFC's funds investment practices. He has been active in corporate governance matters, and has also played an active role in developing approaches to improving ESG alignment and performance of IFC's investment funds. Gordon has also been lead counsel for IFC's venture capital practice and was a core member of the Bank Group's Science, Technology and Innovation Global Expert Team. He speaks often on funds structuring and innovation issues. He holds an A.B. from Stanford University, a J.D. from Stanford Law School and an M.B.A. from The Wharton School.
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