Where do we go ... Thoughts on activism, IT investment and running companies.

A repeat of Nixon, with a touch of Lipton.

"May you live in interesting times". This saying, which as it turns out, is neither ancient, nor Chinese, nor a proverb, which British politician Joseph Chamberlain uttered, seems to fit our reality today like a glove.??

Over the last few months, the scale and momentousness of the events we have witnessed and are witnessing have surpassed all expectations. The COVID-19 pandemic, the war in Ukraine, and the subsequent deglobalisation resulting in structural changes to supply chains are just the tip of the iceberg. And all this is compounded by seismic movements in the geopolitical arena with the escalation of US-China tensions coming to the fore.

Let me add that all this is happening in parallel with a technological revolution that is accelerating exponentially before our eyes. Solutions based on so-called artificial intelligence, distributed computing networks or quantum computers are now moving from the conceptual phase to the production phase. This can be seen most clearly in the financial, medical and manufacturing sectors, the traditional protagonists of the technological revolution, but this is only the taste of the digital change yet to come.

Regulatory moment.

But how does all this relate to the legal or regulatory environment more broadly? Well, today we are just laying the legal foundations for a new economy. An economy in which data has become fuel, data centres have become refineries and IT systems have become engines fuelled by a high-octane mix of data.

How often do we get the chance to contribute to the creation of new legal infrastructure on this scale? Rarely, very rarely. Such opportunities are key regulatory moments, i.e. periods in history when the scale of socio-economic change necessitates the fine-tuning of the legal order to the new reality. The Industrial Revolution of the 19th century was one such change. The Second World War was another. In both cases, those living at the time built or rebuilt the reality around them in parallel with the legal order. Today the situation is similar, although I dare say the nature of the challenge is more complex due to the number of variables and factors affecting the end result.

A repeat of Nixon.

Today's situation has a singularity that distinguishes it from previous cases, as the subject of regulation is technology. With such a theme, we are dealing with a phenomenon that is essentially transnational, surpassing geographical constraints. A phenomenon whose unifying effect is the net, which has turned the world into a global village with all its inhabitants being connected. As a consequence, we can use the same solutions from different, often very distant places at the same time. This state of affairs - often considered an advantage - does not however facilitate the development of a coherent approach to building a new legal architecture.

Moreover, the situation is further complicated by the fact that these new technologies have today become a strategic resource used in the geopolitical competition between the United States and China. Thus, such a situation fundamentally affects the model of regulating the use of advanced technologies, such as artificial intelligence, data transfer and even the distribution of key technical components.

Building a regulatory foundation for a phenomenon as momentous as technology should not succumb to the pressures of superpower rivalry. By this, I mean that the drafting of regulations in the atmosphere of a new arms race will not serve their quality, but simply reduce them to a short-term tool for fighting a rival. As a result, we may lose sight of the longer-term perspective that is so necessary when designing a new, coherent and predictable legal architecture.

From today's perspective, a repeat of Nixon, by which I mean an attempt to reopen to China, in reference to US President Richard Nixon’s visit to Beijing in 1972, today sounds not so much like political fiction, but rather science fiction. But this might at least be worth thinking about. As of today, it is only in the realm of the imagination that the benefits of cooperation between these two technological potentials remain. And I know you have to come down to earth, it's not going to happen anytime soon, if at all, but 12 months ago we thought the same about many things.

And as we begin to build a new regulatory world, it's worth bearing in mind the lessons we've already learned. Let me tell you a few words about one of them.

A touch of Lipton.

To say that Martin Lipton is a living legend of the legal world is to say virtually nothing, and so I’ll stop at this point. In 1979, Martin Lipton published a paper entitled "Takeover Bids in the Target's Boardroom". In a nutshell, the paper points out that in running a business, what matters more than current profits is the purpose for which we do what we do. Of course, someone will immediately say that that purpose is precisely profit, but let's leave such answers to one side for the moment.

To be clear, Lipton was not saying that profit doesn’t matter, of course, it does - without it, we would find it difficult to run our business. However, the point is that profit should not become an end in itself. Profit should be the fuel that drives our enterprise towards greater value. Nothing revelatory. We have heard this so many times before from economists, academics and management theorists. The thing is, Martin Lipton is none of these.

Lipton is a legal practitioner who has seen thousands of transactions with the suffocating smell of quick profit looming over them, obscuring the view of anything but the profit itself. Apart from transactions, Lipton is an authority on what is known as corporate governance, which is the set of principles governing the functioning of key elements of a company, including in particular the relationship between its shareholders and its employees and a community of clients and business partners (stakeholders).

According to Lipton, the imbalance between the dominant need for quick profits and other long-term values was due to the fact that shareholders had too much influence over the directional decisions of businesses while having little or even no involvement in their operations. Such an approach, in Lipton's view, is a degeneration of capitalism, and reducing all activity to the primacy of numbers will ultimately lead to the downfall or profound breakdown of the system. To quote Lipton, if we don't do something about this, capitalism will not be around in the next 50 years.

M. Lipton's reflections were the result of his observation of and participation in the flailing US economy of the 1960s and 1970s. The economic realities were, for obvious reasons, different from those of today. However, Lipton's criticism of the corporate operating model of fetishising current profits over building long-term value seems to be worryingly relevant today. or: However, Lipton's criticised corporate operating model fetishising current profits rather than building long-term value seems dangerously replicated today. The aggressive model of investing in IT companies, where the primary objective is a quick return for investors via an even quicker exit, leads to, on a macro scale and on a long-term basis, a reduction in the quality, and thus the value, of the products or services provided. We are building a market where an efficient story combined with convincing marketing is more important than real value delivered to the user.?

We are facing uncertain times, to say the least. We hear a lot about crises, inflation and economic turbulence. So perhaps this is the best time for a touch of Lipton side-by-side with a repeat of Nixon, now in a more digital world, but a world still slaves to classic human greed. This rerun would be good for all of us. And that is what I wish you and myself on the occasion of the 100th issue of ITWIZ magazine.?