05 February 2019

ECGI: The End of “Corporate” Governance (Hello “Platform” Governance)

A significant development in the global economy over the last two decades has been the emergence of businesses that organize and define themselves as “platforms.” By platform, the authors refer to any firm that uses digital technologies to create value by facilitating connections between two or more groups of users. Think Amazon or Alibaba (connecting buyers and sellers of goods), Facebook or Instagram (connecting friends and family), or Uber or Airbnb (connecting service providers and service users). What is common to all platforms is that they make connections between “creators” and “extractors” of value and the platform generates a profit from making these connections, either by taking a commission or advertising. Over the last decade, platforms have grown to become some of the largest companies in the world and all companies are now obliged to consider integrating platform operations into their business.

However, platforms are increasingly controversial. Most obviously, they raise concerns about privacy (think Facebook and Google) and market power (think Amazon and Google). And as platforms have expanded in size, they have struggled to maintain their initial promise and brands that were initially disruptive have lost much of their initial appeal (think Facebook, Google or Uber). Finding a regulatory framework that promotes socially responsible platforms has become one of the critical challenges in contemporary business regulation.

In particular, the paper suggests that a tension exists between the incentives created by modern corporate governance frameworks and the business needs of today’s platforms. Traditional models of corporate governance are an adaptation to a world of hierarchical and centralized organizations and seem ill-suited to the organizational and business needs of platforms. Corporate governance feeds a short-term, compliance-oriented and cautious corporate culture that can be counter-productive in a world where companies need to be dynamic and continuously adapt to rapidly evolving technologies, markets, and consumer demands. The current regulatory framework promotes an unhealthy “corporate” attitude that is failing everyone, and that a new direction (what we term “platform governance”) is required.

Full paper

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