Updated: 5 days ago
Let me start this part by asking you, what is governance? Depending on which industry you are, your answer might slightly vary. There’s a high chance that it will rotate around keywords, such as policies, procedures, systems, rules, etc.
However, if you are from the platform industry, I presume that the variation in your answer might get noticeably widen.
I am not trying to scratch the moral skin of the platform industry, nor am I trying to spark a definition war. I believe that a sizable percentage within the platform industry is adhering to good governance practices, but unfortunately, their practices are underpinned by incomplete definitions.
Needless to say, the above definitions are among the best that you can find on corporate governance. My only issue is that these definitions have been designed during the industrial age for linearly operated businesses, where everything used to take place within the walls of linear value chains, “Pipe-based businesses.”
Platform-based businesses, on the other hand, are a completely different story: Resources, assets, people, and values thrive outside the businesses’ boundaries — within vibrant ecosystems.
In the platform age, businesses are no longer gravitating to the conventional rules of economics. A new set of economic fundamentals (thanks to the internet) is underpinning the value creation (e.g., zero marginal cost, minimal distribution cost, and insignificant transaction costs).
Governance architecture during the industrial age was built (from its grassroots) around the business itself, with a varying consideration to other stakeholders, in relevance to their importance/ranks, to the overall value creation process.
However, during the platform age, governance architecture is supposed to extend its sphere to a much larger environment: to cover a core as well as a periphery.
In this age, governance must encapsulate the “Coreholders” (the platform, the producers of value, and the consumers of value) as well as accommodate the needs of the stakeholders.
However, completing the aforementioned (incomplete), corporate governance definition cannot merely be attained by adding a few fancy lines to the existing ones.
We need to revisit the origin of governance, but how far we need to travel back in history? A hundred years? Maybe more? In fact, many more.
This valuable handbook traced the origin of governance, back to 500 B.C., to the Confucian Analects.
Yet, I wanted to dig deeper. I wanted to experience the first touchpoint: the first encounter between human beings and the very fundamental essence of governance. Thankfully, one day, while I was reading the Holy Quran, I came across the following verse:
This, to my humble understanding, is the first encounter between humans and the essence of governance: a paradigm shift in my understanding of the concept of governance. Yes, to me, governance became an “Existential Core” rather than an “Add-on.”
Governance, unjustly, was merely comprehended from a control and mitigation viewpoint — as an essential “add-on” that enhances the business practices (a necessary element for growing a business, or when going public). Unfortunately, with such view (being an add-on), governance was imprisoned by the cost/benefit duality.
The above first encounter reintroduces governance as one holistic existential core: a pre-requisite for any new beginnings, which starts by empowerment and ends with control, not the other way around.
Governance, according to this verse, is about having the right authority, which enables and empowers the right people to do (thrive) the right things, in the right environment, while establishing the right prohibition, supervision, and accountability. These are the seven lenses of platform governance.
This understanding was reflected in Part One, in which I started this story-telling white paper with a platform definition (which was greatly inspired by the work of @John Hagel and @Sangeet Paul Choudary).
A platform is an “economic architecture” that governs the:
Aggregation and match-making of the right supply and demand (i.e., governing interaction enablement)
Gravitation and mobilization of the right resources (i.e., governing interaction enrichment)
Creation, curation, and consumption of the right values (i.e., governing interaction facilitation)
Assignment and enforcement of the right authority and responsibility (i.e., governing the rules of engagement)
In the above platform’s definition, I made sure to incorporate governance into the architecture’s core: starting by governing the element of value creation and ending with the control and accountability element.
Value creation in the platform age yields from the intersection between two chains: a value chain and a network chain (a concept introduced here, here, and here). This intersection adds a thick layer of complexity in the touchpoints between the “coreholders.” In other words, the network effects, which sparks a continuous interplay between modular and interdependence touchpoints.
Let us now examine the seven lenses of governance, with a case study. Have you ever heard about Theranos? If not, you might want to click here. Or if you a reader, you might want to read Bad Blood.
Examining Theranos, via the seven lenses, you might immediately conclude that only the “right authority” is the prudent lens. Seriously, who can afford to have such political, military, and economic heavyweights’ figures to serve on his board? However, with all due respect to the three gentlemen, who might be the right authority at the White House or a presidential round table, they proved not to be the right authority for assuming the fiduciary duty of such a company.
The first encounter teaches that governance always starts with the right authority; unfortunately, Theranos’ problem, I would argue, started there, too.
The media want you to believe that Ms. Holmes manipulated the shareholders, investors, business conglomerate, regulatory body, and the press, via her mesmerizing round blue eyes, her thick pitch tone, and her (Jobs’ style) black turtleneck. Holmes, in plain English, leveraged her scandal on the reputation of Theranos’ governing authority.
Ask yourself (after a good look at the below picture) the following:
If you are a shareholder, in which company (A or B) would you want to grow your wealth?
If you are an investor, in which company (A or B) would you invest your money?
If you are a conglomerate, with which company (A or B) would you want to do business?
If you are a regulator, between company A or B, which you will license?
If you are the press, which company (A or B) will be your headline?
A governing authority must not delegate its fiduciary duty to a voting percentage. At Theranos, the governing authority was restricted by the so-called voting power: Ms. Holmes enjoyed the majority of voting share. Yet, the board members could stop Ms. Holmes from leveraging on their long-standing reputation, by merely stepping down. The governing authority was indeed dislocated from the flow of the right information, but it is not a prudent excuse for ignorance.
Now imagine if a similar scenario takes place in a platform-based business (e.g., Facebook, Google, Amazon, etc.) that can reach and affect billions of people.
The governing authority in the platform age, regardless of their technical status (executive directors, non-executive directors, independent directors), must have the right tools to get the right information at the right time to make the right decisions.
In this part, I would like to introduce a tool that can bridge the awareness gap, between the right authority and the other six lenses of the governance structure.
Governance at the age of platform extends its merits a bit beyond the technical principles of good corporate governance, (company formation, board compositions, voting powers, etc.). On top of those technical principles, governance must be more concerned with striking a balance between the coreholders’ experiences and behaviors — fixated on balancing the allocation of the rights, authorities, and responsibilities among the coreholders while enriching the platform’s ecosystem.
Platform’s governance must continuously improve the relationships, interactions, and experiences — aiming towards a fair distribution of wealth among those who participated in creating it. No party in on the value creation chain should be allowed to take more than his/her fair share.
To do so, you need the right tool, “Platform Governance Canvas.” This is a tool that is designed to stand as a dynamic x-ray of the health of the coreholders’ experiences.
This governance canvas is designed to consolidate the coreholders’ voices into one visual (language) map. I say visual map because it can direct the governing authority’s attention to where it should be: allowing a platform to learn from the richness of its data flow.
Scaling the quality of the coreholders’ experiences through governance necessitates understanding the choices those coreholders have within the interplay between the value chain and network chain’s touchpoints.
So let us bring this canvas into our story-telling white paper (investment banking industry-wide platform).
The success of our proposed industry-wide platform is inseparable from the coreholders’ ability and willingness to collaborate and deliver values. Therefore, the ownership structure should be designed to strike a balance between the ecosystem participants’ interests and the industry-wide platform’s evolutionary trajectory.
As we elaborated in previous parts, collaboration within the investment banking industry cannot take place unless the trust is restored. As you know, regaining trust is not a public relations or marketing endeavor. You gain trust by giving equal voices in the value creation process.
Such a tool will help the governing authority of the industry-wide platform to consolidate the different views of the coreholders and the stakeholders.
The starting point is to label the pillars of the star with the relevant behavioral aspect (each platform differs in its core behaviors); then, the governing body must rank the labeled pillars. The ultimate objective is to come up with a star shape.
Next, assign the agreed-upon canvas to the coreholders as well as key stakeholders. To conduct independent tests (each group should be able to produce its unbiased voice)
Finally, the governing authority must consolidate the independent voices into one holistic illustration. This way, the right attention, effort, and resources can immediately be deployed to the weak spots.
While more can be said here, I guess the platform governance canvas is straightforward. But, I cannot stop wondering how Facebook’s governance canvas might look? Don’t you? So I will leave you with this question.