Law in the Internet Society

Ethical Technological Development and Corporate Governance

-- By EricaPedersen - 09 Dec 2019

In a capitalist economy, how might technology companies be forced to take seriously the ethical implications and social impact of their products and business strategies? As a society, we do not have time to wait for comprehensive federal regulations to provide robust individual and collective privacy protections, break up the big technology companies and federate digital services, or eliminate corporations’ stranglehold on the levers of public policy (although it is imperative we maintain pressure on elected officials to prioritize these issues). In the very near term, we need industry insiders to take responsibility and raise their voices. Eschewing the shareholder primacy model and empowering workers are necessary first steps towards reasserting the public interest in technological development.

The Shareholder Primacy Model

In the 1960s, Milton Friedman began to proselytize the theory that the fundamental purpose and singular “social responsibility” of a corporation is to use its resources and engage in activities designed to maximize shareholder profits. Federal and state courts have since amassed substantial precedent affirming the shareholder primacy model and prescribing profit maximization as an “unconditioned obligation.” Corporate managers and directors may consider the interests of other constituencies—such as employees, customers, and the general public—only insofar as those interests align with measures which will increase shareholder profit.

Proponents argue that the shareholder primacy model ultimately optimizes social benefit by aligning the interests of shareholders and management, reducing agency costs, and incentivizing efficient allocation of firm resources. However, it also fosters short-termism, anti-competitive business strategies, and a lack of concern or accountability for the destructive social and environmental externalities of those strategies.

Building an Enormously Profitable Dystopia

The digital technology industry is an excellent example of the destructive consequences of shareholder primacy dogma in anti-competitive and essentially unregulated markets. The relentless search for increased shareholder value has propelled the centralization of digital services in the hands of a few Tech Giants, the exacerbation of informational disparities, and the hoarding of knowledge in the form of intellectual property and trade secrets. Investors pump capital into early-stage start-ups in the hopes that that the business will disrupt or replace an existing market or industry, or at least generate enough monetizable data to be purchased by one of the Giants. Funding may come with strings attached, but rarely do these provisions relate to minimization of possible negative impacts that the technology’s design or monetization might have on society as a whole. Such concerns are denigrated as the hyperventilations of conservative outsiders flailing against inevitable and socially beneficial technological development. Traditional ethics have no place in this brave new digital world.

Industry insiders opine that eliminating possible constraints on developers’ creativity and destructive capacity is necessary to sustain economic growth and ensure that the US remains a leader in technological advancement. Mass surveillance of consumers and the invasive and oft-undisclosed collection of sensitive and behavioral data are touted as essential resources to fuel this development. Society is internalizing this norm so quickly that the failure to engage in extensive data collection and analysis might soon be considered a breach of fiduciary duty to shareholders. Perceived fiduciary obligations could also be used to rationalize decisions to retain consumer data and resell to third parties in a perverse race to maximize the value of corporate assets: us.

The key mechanisms relied upon to incentivize some consideration of social welfare in corporate governance and decision-making, such as public trust and Corporate Social Responsibility doctrine, are effectively neutralized. Digital technology companies are insulated from public scrutiny by trade secrets and copyright protections, as well as the public’s debilitating belief in the complexity of the technology. Moreover, by creating vast webs of integrated services on which consumers increasingly depend for a broad array of day-to-day activities, the Tech Giants have entrapped their constituencies. Crises in public trust thus have little impact on company profit when consumers face substantial switching costs, there are no viable alternative providers, or the alternative providers are likely engaged in the same negligent practices as the original offender. Ignorance, convenience, and social pressure ultimately prevail and concerns about clearly destructive social impacts are thereby rendered moot with respect to the corporation’s profit-maximizing purpose. a

Shifting the Balance of Power

Given the collective nature of the threat that pervasive digital monitoring poses to privacy and autonomy, careful analyses of social and ethical impacts of new technologies must be performed early and often, informing critical decisions regarding product design, software architecture, and business strategy. The adoption of an “information fiduciary” legal obligation—which would, in theory, require executives to forego profit maximization in favor of the public interest under certain circumstances—or voluntary “Data Stewardship” policies are wholly insufficient. Feigned efforts at after-the-fact harm reduction will only reinforce the Silicon Valley development mantra: take now and (if you get caught) seek forgiveness later.

Empowering other stakeholders in corporate decision-making would provide an even more powerful incentive towards ensuring corporate accountability and enhancing public awareness. Historically, grassroots activism and employee whistleblowing have been integral to raising public awareness of and eventually curbing environmental threats and harmful resource extraction practices. Similarly, employee activism has played a key role in forcing tech executives to reconsider some unethical business ventures. Programmers and software architects are in the best position to predict, explain, measure, and monitor the threats posed by new technologies. However, as Google has demonstrated, employment-at-will doctrine allows companies to easily quash employee dissent through terminations. Unionization of workers in the digital technology industry would help to shift this balance of power, encourage transparency by management, and provide legal protections for whistleblowers. The inclusion of ethics in computer science curricula and widespread promotion of professional standards would also facilitate conscientious and effective employee oversight.

Structural reform and comprehensive regulation are necessary to forestall dystopia. However, we are not powerless in the interim. Digital tech companies rely heavily on younger generations to develop, spread, and sustain their platforms. Insiders mustn’t be so quick to drink the Kool-Aid.

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r3 - 26 Jan 2020 - 22:18:40 - EricaPedersen
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