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Who regulates the regulator?

By Philip Sinel

How did we get to a position where, for more than a decade, banks got away with aggressively selling ‘ineffective and inefficient’ products? The answer lies in utterly inefficient regulation that, ultimately, throws up huge questions about the way in which the UK’s financial system is governed.

 

It’s hard to argue against the notion that the mis-selling of Payment Protection Insurance (PPI) will go down as one of the most notorious banking scandals in recent years, surprising no-one who owns a mobile phone and has, therefore, been hounded by claims companies. What is surprising, however, is not that the scandal happened in the first place, but that it took so long for the regulator to stamp out PPI once and for all.

Even as the total paid out by UK banks reaches £36bn, and the deadline for submitting claims passes, we still dwell under the ever-growing shadow of the banking sector’s bête noire. The sector has braced itself for additional claims, with Lloyds setting aside a whopping £1.8bn extra funds for such an eventuality, a move mirrored by RBS, CYBG and the Co-Op.

The obvious question, then, is how did we get to a position where, for more than a decade, banks got away with aggressively selling ‘ineffective and inefficient’ products? The answer lies in utterly inefficient regulation that, ultimately, throws up huge questions about the way in which the UK’s financial system is governed. To put it another way: who regulates the regulator?

On the face of it, PPI was innocent enough. Sold as insurance to high street customers taking out loans, the idea behind PPI was that if the customers lost their jobs then their insurers would pick up the balance of the outstanding loan. Ultimately, however, PPI was an inherently flawed product, and one that should have set alarm bells ringing for all but the most negligent of regulators.

 

PPI was not benchmarked in any way, which meant that consumers were left totally devoid of any comparable and were required to buy the PPI given out by the bank selling the loan.

For a start, PPI was chiefly sold to self-employed customers who, by definition, could never make a claim as they could not lose their “job”. Secondly, PPI operated as a kind of financial closed shop, or an aggressive cross-sell where without PPI (which is where the banks made the big bucks) no loan could be taken out. What is more, PPI was not benchmarked in any way, which meant that consumers were left totally devoid of any comparable and were required to buy the PPI given out by the bank selling the loan. At the same time, PPI was often underwritten by the banks themselves, so they were getting both sides of the transaction – it was the financial gift that kept on giving, though not to the consumer.

Worse still, anybody trying to claim had to jump through all sorts of hoops. It was questionable whether anybody ever got any money back, with obfuscation delays and red tape thrown up at every opportunity – and that was just for those who were entitled to claim.

None of this should have come as a surprise to a diligent regulator, not least the issues consumers faced with getting money back: the Guardian reported in 2004 that just 15% of claimants actually received any money, almost a full year before the late Financial Service Authority started taking any action, which even then was too little, too late. By 2005, the Daily Telegraph and Citizens Advice had also covered the news, and the FSA finally issued its first report on PPI, noting poor selling practices and lack of compliance controls.

Rather than act swiftly or decisively, the regulator dithered. Despite being alert to problems from at least 2004, it didn’t levy the first fines until 2007, and even then, the focus was on smaller operations.

And that should have been it for PPI: the regulator now aware of a growing chorus of criticism of a product that people had been “duped” into buying, in the words of Peter Vickery-Smith, head of consumer advice service Which? Incredibly, it was not.

Rather than act swiftly or decisively, the regulator dithered. Despite being alert to problems from at least 2004, it didn’t levy the first fines until 2007, and even then, the focus was on smaller operations. For example, Alliance & Leicester was fined £7m in 2008 against a PPI income of £135m. In fact, it wasn’t until 2009 that single premium PPI – one of the most egregious mutations of the product – was banned. The real scandal, then, lies as much in regulatory inertia as it does with the banks flogging a knowingly-flawed product.

To make matters worse, it didn’t need to be this way. How difficult would it have been for the regulator to ban the sale of the product that could never be drawn upon – insurance for the self-employed? To make sure the products were affordable and fit for purpose? To insist on full disclosure to customers, not only of the true costs, but also to disclose that a person did not have to have PPI in order to obtain a loan?

Above all, why did it not prohibit banks from selling their own products where they are self-insuring?

Was the end of PPI caused by regulator? No, it was not; it was caused by those love-them-or-hate-them ambulance chasing claims companies. In other words, the private sector and market forces who finally provided redress – less their cut, of course. The numbers are staggering. Lloyds has been receiving 70,000 PPI claims per week since they started their redress scheme and even this is a drop in the ocean – 64m policies were sold between 1990 and 2010, “but in many cases exclusions meant that customers could never claim.”

That a loose cartel of claims companies ultimately ended one of the most significant banking scandals in recent years, in place of a manifestly deficient regulator, should be a serious cause for concern. How will the FCA react when the next mis-selling scandal inevitably rears its head? I sense, we will almost certainly see history repeat itself.

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About the Author

Philip Sinel is a Jersey Advocate and litigation lawyer. He is the Senior Partner at Sinels. His areas of practice include Commercial Litigation, Professional negligence, Fraud, Trust Law, Banking and Financial Services and Private clients.

Can Political Leaders and Corporate Leaders Lead the Same Way?

By Mostafa Sayyadi

Military leaders often provide what is called “Top Cover” flying above their followers to ensure their mission is a success. Submarines travel with pilot ships to guide them. This is what corporate leaders need to do. The purpose of this article is to answer the question “Can political leaders and corporate leaders lead the same way?”

 

How Political Leaders Can Lead Governmental Organisations?

There are various issues and considerations existing in the leadership literature as the core of the criticism in the literature is that organisations of all sorts (corporations, government agencies, and non-profit organisations) tend to be over-managed (and, in some cases, over-administrated) and under-led.1 Reading all the books on leadership today will cover the gamut of Shakespeare to Geronimo. Not to say that these authors, leaders, and thinkers do not have anything good to say about leadership. It is just that the plethora of leadership literature has sent mixed signals to political and corporate leaders.

When thinking of leadership and politics, a leader has to be a politician but a politician does not always have to be a leader. In American politics in 2016, a crucial year between the democratic and republican parties, this presidential election has shown that there is a direct connection between politics and CEOs, who at least think they are experienced enough to hold the ultimate leadership position. Political leaders are not any different than organisational businessmen. More and more business men and women are becoming political candidates and people are responding positively. The reason being – the two do go together. At the heart of leadership are a large amount of followers. Without the support of followers, leaders will fail. The same thing goes with the political candidate that has to win the hearts and minds of the followers to get elected.

 

There are many more followers than there are leaders and this is more so in the political realm. The question is: Can political leaders and corporate leaders lead the same way? The answer is a resounding “Yes.” For example, Eisenhower, one of the former presidents of the United States in World War II, effectively led both American government and the Allied Forces in Europe in defeating Adolf Hitler. Hitler has been posited as a charismatic leader as he converted many brilliant people to follow him but the difference with his leadership style is that he represents the “Black Hat” of leadership. A leadership status that is not only a failing platform but one that represents destruction as opposed to innovation and expansion. Barring the Hitler-type charismatic leaders, there is hope for leadership at the political level.

Eisenhower’s leadership provides lessons for CEOs in today’s organisational challenges. Eisenhower argued that leaders must care for their people as individuals, always remain optimistic, and place themselves with and for the people, and, most importantly, provide the WHY behind what you ask them to do.

Politics and corporate leadership may merge today. After WWII, leadership theoretical models at Ohio State and the University of Michigan studies stemmed from research based on military leaders and their followers. This was mostly funded by the GI Bill that helped many soldiers pursue academic degrees. Leadership has a critical role in politics because we elect leaders and not politicians.

Therefore, leaders fundamentally affect the way a government performs its functions. Take a look at the nation’s largest health insurer, United Health Care, who out their due-diligence to shareholders, had to cut out Obama-care exchanges, in April 2016, because they were expected to lose one-billion in revenue.

 

How Corporate Leaders Can Lead Business Organisations

Investors recognise the importance of leadership. A good leader can turn a weak business plan into a success, but a poor leader can ruin even the best plan. One example of this comes from CEO Rich Teerlink, who dramatically changed Harley-Davidson in the 1980s, and fundamentally built a different organisation that still prospers today. The success of leadership at the Harley-Davidson Corporation has stood the test of time. For example, Harley-Davidson’s leadership created a more effective organisation built upon three primary principles, focusing on people, challenging norms, and continuing to fundamentally change.2 At Harley, every employee can participate in leadership decision-making.

Another example of business leaders in a highly competitive environment is Steve Jobs, former leader of the Apple, who built a highly effective organisation through taking a change-oriented leadership approach, which highly manifested itself in talent, product, organisation, and marketing.3 As a result, leadership, being the core of management, is crucial to company’s success–both from a performance and management level.

The evidence from these examples suggests that leadership is highly demanding at the corporate level. For organisations to achieve a sustained change and eventually a higher degree of efficiency and effectiveness, selecting a great corporate leader is the key to success. In the absence of leadership, organisations lose their required direction to achieve a high degree of hypercompetitiveness, and cannot implement successful change in order to adapt with today’s global business environment.

As corporate leaders attempt to manage people they find that intellectual capital is the in the forefront of success – Bill Gates once mentioned that if he lost his top 50 people that he would not have an organisation anymore. Corporate leaders develop organisational communications aimed at providing valuable resources for all organisational members. They enhance knowledge sharing among intellectual capital and stipulate knowledge to be shared around the organisation. Sharing the best practices and experiences could positively impact some aspects of non-financial performance such as innovation, providing learning and growth opportunities for employees. Empowered employees can enable organisations to actively respond to environmental changes, which can in turn enhance performance in terms of return on assets and return on sales.

The outcome is success which narrows the gap between success and failure and this can be achieved by the commitment of organisational members and facilitated by corporate leader. When corporate leaders show concern for the employee’s individual needs, individuals begin to show more commitment and they become more inspired to put extra effort into their work. This extra effort improves customer satisfaction, and impacts shareholder value and improves operational risk management.

Corporate strategy can be also employed by corporate leaders to enhance goal achievement. Corporate strategy includes four dimensions: analysis, pro-activeness, defensiveness, and futurity.4 The first aspect, “analysis,” focuses on identifying the best solutions for the organisational problem. Corporate leaders apply this strategy to create more innovative solutions for organisational problems. The second aspect “futurity” emphasizes the effectiveness of long-term decisions. Corporate leaders employ this kind of strategy to develop a vision of adopting more comprehensive information about the future. The third aspect, “defensiveness” can also be applied by corporate leaders by taking into account the objectives of strategic implication that seeks to decrease organisational costs and redundancies. While corporate leaders focus on implementing changes, a defensive strategy can be used to modify the current processes to enhance organisational efficiencies. The fourth aspect, “futurity” incorporates a pro-active strategy that identifies the opportunities that are available but not always addressed in the business, the global environment, and the political regulation changes. This kind of strategy can be also enhanced by corporate leaders as they adopt a strategic posture that inspires employees to identify better opportunities in both the internal and external environment.

Therefore, corporate leadership  is linked with organisational effectiveness, particularly in terms of achieving goals, decreasing costs, improving innovation, and increasing the rate of responses to environmental changes.

 

Success in politics and business can be more effective when leadership is applied to change attitudes and assumptions. Political and corporate leaders can make a fundamental change in the processes by which organisations serve their clients.

In Conclusion

This article highlights the vital importance of leadership in both political and business areas. Success in politics and business can be more effective when leadership is applied to change attitudes and assumptions. Political and corporate leaders can, in fact, make a fundamental change in the processes by which governmental and business organisations serve their clients.

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About the Author

Mostafa Sayyadi, CAHRI, AFAIM, CPMgr, works with senior business leaders to effectively develop innovation in companies, and helps companies – from start-ups to the Fortune 100 – succeed by improving the effectiveness of their leaders. He is a business book author and a long-time contributor to HR.com and Consulting Magazine and his work has been featured in these top-flight  business publications.

References
1. Mills, DQ, 2005, Leadership: How to Lead, How to Live, MindEdge Press, Waltham, MA.
2. Teerlink, R & Ozley, L 2000, More Than a Motorcycle: The Leadership Journey at Harley-Davidson, Harvard Business School Press, Boston, MA.
3. Elliot, J & Simon, W, 2011, The Steve Jobs Way : iLeadership for a New Generation, Vanguard Press, New York.
4. Venkatraman, N., 1989. Strategic orientation of business enterprises: the construct, dimensionality, and measurement. Management Science, 35(8), 942-962.

How to Pitch Your Tech Idea to Any Investor

By Youness Yaghcha

 

A Brave New World

In the Fourth Industrial Revolution, we have seen the rise of new technologies, including blockchain, fintech, artificial intelligence, biotech, and green tech. In the coming years, we are likely to see more disruptive tech ideas emerge in the global startup ecosystem as investors become more interested in investing in new ideas.

According to PitchBook, an international financial data and software company, VCs invested a total of $53 billion in 2,657 companies globally in the first quarter of 2019. This year also saw the birth of 23 new unicorn companies in different verticals worldwide. However, for many entrepreneurs, raising the capital needed to stay afloat, let alone become a unicorn, can feel like an impossible task.

Recently, I spoke with a successful MENA-based entrepreneur who was deeply frustrated by the fundraising process, especially in the MENA region. He claimed that no matter how successful a startup has been, or could be, that the fundraising process in the region is often laborious, tedious and  bears little fruit. Yet, this frustration is not unique to the MENA region.

For over a decade, I have consulted for startups and investors in the U.S., Switzerland and the MENAT region and I have discovered that the biggest challenge for both investors and entrepreneurs alike is the fundraising process. Investors will frequently complain that global startup ecosystems are nascent or that entrepreneurs are inexperienced. On the other hand, entrepreneurs will complain that investors are too impatient and risk-averse. While the complaints vary depending on the maturity of the startup ecosystem in question, fundraising still remains to be a major pain point.

 

In order to ensure the continued growth of these innovative sectors in the MENA region, tech entrepreneurs need to overcome their negative self-talk and hone their pitching skills so they can pitch their ideas to any investor.

There is one category of entrepreneurs who tend to find the fundraising process more off-putting than most and that is the tech entrepreneur. This group of innovators is frequently faced with the formidable task of pitching avantgarde ideas to investors who might not fully understand the complexities of their value proposition. While it is true that many global investors VCs, angels, and family offices still prefer to invest in traditional business sectors and business models, there is a growing number of investors who are looking to invest in the burgeoning global tech scene.

According to Magnitt, a MENA-based data platform for entrepreneurs, investors, and corporates, a total of $893 million was invested in 366 deals across the MENA’s top eight industries in 2018. Magnitt’s 2018 MENA Venture Investment Summary ranked the industries by the number of deals closed and the top five industries included: fintech (12%), e-Commerce (11%), delivery and transport (8%), IT solutions (8%), and F&B (7%). In order to ensure the continued growth of these innovative sectors in the MENA region, tech entrepreneurs need to overcome their negative self-talk and hone their pitching skills so they can pitch their ideas to any  investor.

 

1. Adopt the “less is more” mentality

Any good investor will do due their diligence before approaching a startup. So, if an investor is listening to a startup pitch, they probably already know that the startup team in question is capable and they trust them to do whatever is necessary to make the technology work. However, when most tech entrepreneurs pitch investors, they mistakenly think that investors need to understand everything about their technology in order to invest. In reality, most investors are not interested in understanding the nuts and bolts of a tech entrepreneur’s technology. In fact, most of the world’s most successful investors do not back new technology, they invest in new business models.

If an investor sees potential in a tech entrepreneur’s business model, typically all they want to know next is how much capital they need to invest and how much their return on investment will be. Nevertheless, not all investors are the same, therefore tech entrepreneurs need to be prepared to customize their pitches and pitch decks to satisfy the curiosity of each investor they engage with. At the end of the day, raising funds is all about relationship-building, and if an entrepreneur is not willing to put in the effort to build a relationship with an investor they should not feel entitled to their money.

 

2. Understand who you are pitching

Before pitching to an investor, entrepreneurs need to research their prospective investors and gather as much information as they can about their professional career and investment history. This is important  because it gives tech entrepreneurs the opportunity to build pitching personas for each kind of investor they encounter. Ultimately, pitching tech ideas to a baby boomer investor (born between 1946 and 1964) is not like pitching tech ideas to a Generation X investor (born between 1965 and 1980) or a Millennial investor (born between 1981 and 1996). That being said, while there will inevitably be generational and cultural differences between investors, all investors have one thing in common: they want to make a return on their investment.

Again, no matter how old an investor is or where they come from, they do not need to understand every aspect of an entrepreneur’s technology. They do, however, need to know enough about the technology to remain financially and emotionally invested. In addition to researching an investor’s professional and investment history, tech entrepreneurs should also seek to learn as much as they can about a prospective investor’s life story, as these details will undoubtedly help entrepreneurs craft a more personalised pitch for their investor. The more relatable the analogies and stories that entrepreneurs use in their startup pitches, the more likely it is that an investor will invest, or at least consider investing, in an entrepreneur’s startup idea.

 

3. Be a willing teacher and student

Sometimes, tech entrepreneurs can develop a defensive attitude about their technology, especially when they have to explain it to “non-techie” people. This attitude often drives tech entrepreneurs to avoid situations where they might feel criticised, inevitably costing them valuable investment opportunities. That being said, the fear of criticism is not the only thing that prevents tech entrepreneurs from pitching their ideas. Sometimes, the fear of their technology being “too complicated” to explain to “non-techie” people keeps tech entrepreneurs from pitching their ideas to investors. Either way, the fear of feedback, especially negative feedback, often keeps tech entrepreneurs from developing themselves and their technology.

However, if tech entrepreneurs really want to make their technology available to their target markets and secure long-term investments, they have to be willing to teach investors about their tech. They also have to be willing to take criticism about their business and “be coachable.” Just as an investor does not know or understand everything there is to know and understand about an entrepreneur’s technology, entrepreneurs do not know or understand everything there is to know or understand about product development and running a successful business. Therefore, tech entrepreneurs need to be willing to learn from their investors and leverage the knowledge, resources, and networks they have to offer to support the long-term growth of their startup.

 

The Institutional Family Office

At the top end of the wealth and complexity spectrum are the family offices that look after some of the world’s most successful families. These are the family offices that make the headlines and are probably what most people associate with when they hear the term. In reality, however, these make up a small minority of the family offices that exist in practice.

These organisations will typically hire a team of professionals over a period of time and see themselves as the peers of private equity funds and principal investors. While they may still outsource certain services, there will usually be an in-house expert to oversee each asset class from financial investments, private equity and commercial real estate through to yachts, planes and art work. These will be accompanied by a CFO, lawyers, tax specialists, a team of administrators and, in some of the largest, their own HR or IT functions.

 

The Real “Dream Killer”

Last year, I met a man from one of the wealthiest families in the MENA region who told me a story that fundamentally changed the way that I think about investment. In 2018, this man, who I will call Mustapha henceforth, attended one of the United Arab Emirates’ most popular annual entrepreneurship events to explore new investment opportunities. At this event, it is customary for participants to wear a badge that indicates whether they are an entrepreneur, investor, government official or visitor in order to facilitate the networking process. However, when Mustapha came to register for the event, he was given a visitor’s badge instead of an investor’s badge.

Loath to waste time correcting the minor error, he decided to enter the event hall where hundreds of entrepreneurs stood in their booths pitching their startup ideas to the passing multitudes. Mustapha seamlessly blended into the bustling crowd, thanks to the visitor badge that he had received at the registration desk. He anonymously began to explore all the event’s different startup booths, until one particular booth caught his eye. Interested in learning more about the startup, Mustapha made his way to the booth to ask the founder some questions.

When he arrived at the booth, the startup founder took one look at Mustapha’s visitor’s badge, sighed inwardly, and proceeded to give him a rushed pitch so he could make himself available for “more important” guests at the event. After listening to the entrepreneur’s clumsy pitch, Mustapha walked away from the booth feeling offended and annoyed by the entrepreneur’s belittling demeanor towards him.

If Mustapha had been wearing an investor’s badge, that conversation might have gone very differently. However, the mistake was not Mustapha’s, but rather the entrepreneur’s. While Mustapha just so happens to be a wealthy many with a passion for investment, not everyone who invests in a business has to be rich or have a long investment history. All you need to be an investor is some savings and the willingness to invest. So, essentially, everyone can be an investor.

The moral of Mustapha’s story is that an entrepreneur’s ego and over-inflated sense of self can do more damage to their entrepreneurial dream than any tech jargon or math algorithm will. Although many tech entrepreneurs might feel that their complex tech ideas are deterring them from raising capital, that is not always true because even simple, non-tech startup ideas can be pitched poorly. The success of a tech pitch is not defined by how complex or simple an entrepreneur’s idea is, it is defined by their ability to gain an investor’s trust and simply convey their added value.

Over the past two hundred years, we have seen a rapid advancement of technology. Having said that, what is considered to be “cutting edge” is constantly evolving. That is why tech entrepreneurs who want to be successful need to focus on establishing startups that provide innovative solutions and unique business models. If a tech entrepreneur can do that, there is no reason why a prospective investor should not want to invest in their seedfunding round, or successive rounds of funding.

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Youness Yaghcha is a serial entrepreneur with more than a decade of experience in financial services, investments and management consulting. I’ve worked with large financial institutions in private banking and technology and I’m a specialist in business strategy and M&A. After years of working in Europe and the MENA, I’ve developed a complex understanding of various investment and entrepreneurial ecosystems.

 

Overlooked Strategies for Surviving the US-China Trade War

By Dan Prud’homme and Mark Cohen

The trade war between the US and China has escalated to a point far beyond the expectations of many. In what started as volleys of tariffs and a WTO complaint against China’s “forced” technology transfer policies, now involves expanded export controls, inbound investment restrictions, restrictions on labor mobility, an FBI task force on economic espionage from China, visa limitations, and an embargo (albeit a temporarily relaxed one at the time of writing this article) against Huawei, a leading Chinese telecom firm. The supply chain disruptions from the trade war are immense.1 And Western firms are increasingly fearful of regulatory reprisals in China.2 While reconfiguration of manufacturing supply chains involving China has been on the forefront of many managers’ responses to the trade dispute,3 currently available advice is sometimes ill-informed about how to best do so. Further, intellectual property (IP), innovation, and non-market strategies – some of which also involve reconfiguring supply chains, others which are distinct – are less discussed but critical for many firms to survive the tensions.

 

Attempts to redraw manufacturing supply chains so that companies’ goods will be classified as originating from a country other than China, and therefore avoid the latest round of Trump tariffs, are fraught with risks.

Reconfiguring manufacturing supply chains the right way

Attempts to redraw manufacturing supply chains so that companies’ goods will be classified as originating from a country other than China, and therefore avoid the latest round of Trump tariffs, are fraught with risks. In some cases, it may be possible to reduce US tariffs to zero if a firms’ goods undergo a sufficiently high level of manufacturing or other transformation in a country that enjoys duty-free treatment under a free trade agreement or other preferential arrangement with the US. However, in order for products to be eligible for US non-punitive “most favoured nation” tariffs, firms will usually need to perform a “substantial transformation” of their product components in a country outside of China and prove the country of origin of such transformation. Separate rules regarding the country of origin may also apply if the product is subject to antidumping or countervailing duties. Additionally, US export control laws have separate rules regarding incorporation of US technology into foreign-manufactured products.

Under long-standing case law, a product is “substantially transformed” if it obtains a new “name, character or use” in that third country. Generally speaking, mere assembly or packaging is not enough to achieve substantial transformation, and each country may have its own country of origin rules governing such transformation. In other words, if a company thinks it can install the last screw in an electronic device in Vietnam and thereby avoid US tariffs on Chinese goods, it is misguided. Much more substantial forms of manufacturing need to take place. If the country of origin is misrepresented to US Customs, US law provides for a range of penalties, including significant rewards to whistleblowers who report on fraudulent behaviour.

 

Intellectual property strategies

Restructuring IP transactions

IP rights are among the least expensive assets to reposition to reduce US duty rates owed to the trade war. This repositioning can be achieved in one of two ways.

First, firms may relocate their IP rights in a new country of manufacture. In certain cases, IP rights could help “transform” the manufactured goods sufficiently to qualify corresponding goods as originating from that country. Before undertaking any significant change of a supply chain, guidance should be obtained from US Customs.

Similarly, strategies for sourcing and integrating computer software, including that protected by IP rights, into products can alter the country of origin or US customs’ duty valuation of those products. For example, embedding software into computer memory in a device in a country outside of China may be sufficient to transform that device from a memory device into a product having a new “name, character or use”, such as a device to perform certain functions in a computer, and therefore able to avoid new US customs duties. In addition, if the software is not “sold” with the medium in which it is embedded rather the customer is only granted a right to use the software, the value of the software may not be factored into the US customs’ duty valuation of the product.    

If relocating IP rights and production outside of China is not feasible, a second strategy is to restructure payments for IP rights to reduce the customs valuation of the goods when imported into the US. Companies that import goods from unrelated parties in China usually pay duties based on the “transaction value” or price actually paid for the imported goods. This transaction value can be adjusted to account for the licensing fees and royalties from the IP rights that the manufacturer of the products needs to pay, which is called a Customs “assist.”

One way to reduce the amount of “assists” is to pay license fees directly to third party licensors rather than have the manufacturer incorporate the license and royalty fees into the costs of goods sold to an importer.4 Importers can obtain guidance from Customs on valuation of their goods or contact their Customs broker for suggestions on additional strategies.

Based on current information, if a firm’s imported products originate from China and are on the 25% tariff list of the Trump Administration without any exclusion from relief, they will be subject to duties of 25% as will their corresponding royalties.5 As of September 1st 2019, an additional round of products is expected to be subject to 10% duties.6 Of course these duties may change.

 

Leveraging China’s improved IP regime

In 2019, a significant number of legal reforms – largely due to the trade war – were made to China’s IP regime that make it less risky for Western firms to license to China, collaborate with Chinese partners, and otherwise engage in IP-intensive operations in the country.7 However, these important reforms have received insufficient attention in multinationals’ strategizing for the Chinese market.

In March 2019, China’s Foreign Investment Law was revised to explicitly prohibit “forced technology transfer” (FTT) policies and establish penalties for government officials involved in misappropriating foreign trade secrets. Also in March 2019, the Chinese government abolished controversial provisions governing the import and export of technology as well as controversial technology-related provisions governing Sino-foreign equity joint ventures. In April 2019, the Administrative Licensing Law was revised to prohibit the state from making technology transfer a prerequisite for granting business licenses in China.

These reforms join a wide range of others in 2018 and 2019 that transform China’s IP regime into a less risky institution for Western firms. Foreign ownership restrictions were removed on new energy vehicle (NEV) operations in China as of 2018, reducing the significant risks caused by a 2017 FTT policy requiring transfer of three core technologies to foreign-Sino JVs as a precondition for foreign firms to produce NEVs in China. In January 2019, a long-awaited national-level specialised IP appellate tribunal was established in China’s Supreme People’s Court to provide greater uniformity in adjudication of technology-oriented IP disputes. This tribunal, which is similar to the US Court of Appeals for the Federal Circuit,8 joins recently established specialised IP courts in China that hear cross-regional appeals and therefore help correct local protectionist tendencies. In April 2019, both the trademark law and the law governing trade secret misappropriation and other types of unfair competition were strengthened. Numerous other improvements have recently been made to China’s IP regime.9

Unfortunately, improvements in China’s IP regime have ironically come at a time when supply chains are being disrupted and the US is making it more difficult to engage in technology collaboration with China. Nevertheless, Western firms should capitalize on the recent IP reforms in China – looking past many of the criticisms about China’s IP regime that initially fueled the trade war – with corporate-level-driven adjustments to their technology and IP management strategies. For example, foreign licensors can now more easily transfer their technologies to unrelated parties in China. US trade data reflects this change: unrelated party transactions now dominate US-origin technology transfer to China. More generally, the recent IP reforms in China make conducting IP-intensive operations and enforcing IP rights in China less risky for multinationals.

Some US firms and government officials have assumed that pushing for even more reforms to China’s IP regime will bring even greater benefits. Indeed, other reforms would be helpful to further reduce risks of innovating in China.10 However, paradoxically, further ratcheting up the current trade war in an effort to squeeze even more IP reforms from the Chinese government may lessen the willingness of the authorities to actually effectively implement the important reforms that have already been made. This would be a lost opportunity for Western firms.

 

Navigating technology export controls

Firms investing in the US will need to find smart ways to maintain business continuity in the face of a more powerful Committee on Foreign Investment in the United States (CFIUS) and an expansion of US export controls, which can block mergers and acquisitions involving Chinese firms or technology transfers involving vaguely-defined “foundational”, “critical” or “emerging” technologies.11 There are also export restrictions aimed at Chinese firms and a recent ban (albeit one temporarily relaxed at the time of writing this article) on selling semiconductor chips and software to Huawei in particular.

Varied IP and R&D responses are needed to address these challenges. As export control laws generally do not cover publicly-disclosed documents such as published patents,12 firms should often still be able to license their US-derived patented technology to related or unrelated parties in China in the face of a more rigorous export control environment. Nonetheless, additional care may be necessary when licensing to Huawei and certain other companies placed on the US “entity list”, which can set restrictions potentially involving patents, such as participation in technical standards-setting bodies. At the same time, R&D-intensive US companies that patent in China and elsewhere may face additional challenges from US export controls if US-derived proprietary technology is involved. Companies will need to closely monitor changes in US and other countries’ export control regimes to see if their R&D programs will be subject to further regulation, if more liberal export control requirements are available for R&D activities conducted outside the US, and if company procedures for obtaining approval to file patents resulting from such R&D overseas need to be altered. Some firms, such as Oracle, have already had to significantly alter operations in China in light of some of these challenges.

 

Innovation strategies

From one perspective, Western firms and research organisations have seemingly benefited from the trade war effectively blocking innovative Chinese competitors out of the US market. However, despite these near-term advantages, Western firms must realize that Chinese innovation cannot be contained in the long-run. In fact, Chinese firms are already innovating in a range of industries and will become even more competitive in the future.13 For example, Tencent and Baidu are innovating in Internet business models, Haier is highly competitive in innovative consumer goods/white goods, DJI is engineering excellent drones, Huawei and Xiaomi are producing high-quality and affordable telecommunications equipment, Huawei is a leader in 5G standards setting, Alibaba is offering popular and inexpensive cloud data services, BYD is making competitive NEVs, BGI is advancing in genome sequencing, and Cloudwalk is developing advanced artificial intelligence facial recognition technology. Many of China’s innovative companies achieve startling growth targets by leveraging the rapid growth of the local market, incredible scalability and lightning-fast time-to-market, improving local IP protection, and government support and some local regulatory barriers against foreign competition.

Additionally, even if the trade war further fragments global markets, it will not prevent Chinese firms from being both domestically and internationally competitive.

Even in industries built upon decades of Western talent and research, where Western firms have sizeable experience curves and lead-time advantages, Chinese firms are making headway. For example, HiSilicion, owned by Huawei, is making competitive smartphone semiconductor chips, and Cambricon and Horizon Robotics are making competitive artificial intelligence (AI) chips. Further, despite the trade war, there will be considerable temptation for Western firms to collaborate with increasingly capable Chinese firms and research organisations to advance next-generation technologies that no one dominates at present – ranging from various applications of AI to new energy vehicles.

Additionally, even if the trade war further fragments global markets, it will not prevent Chinese firms from being both domestically and internationally competitive. Chinese firms will inevitably leverage their growing presence not just in China but in other emerging markets, which account for almost two-thirds of world economic growth and more than half of new consumption over the last fifteen years.14 And China’s Belt and Road Initiative (One Belt, One Road) might help secure these important sources of future demand.15

Western firms need to respond not by remaining technologically complacent behind the protectionist barriers established during the trade war. Instead, to compete in the long-run they must ramp up investment in R&D.

Further, the trade war has already emboldened a heighted sense of nationalism in the form of a feverish quest for technological “self-reliance” in China.16 This neo-techno-nationalism appears to be contributing to faster mobilisation of state and private resources that might enable Chinese firms to catch up to foreign counterparts in a range of industries, both emerging and more mature.  Huawei, for example, is relying more extensively on its own CPU and modem for its cell phone sales in China and has recently launched its own operating system, named “Harmony”, for its cell phones.

Western firms need to respond not by remaining technologically complacent behind the protectionist barriers established during the trade war. Instead, to compete in the long-run they must ramp up investment in R&D, and trim down internal organisational barriers slowing time-to-market of new products and services, allowing quick and powerful responses to a more complex regulatory environment as well as to nimble, innovative, and increasingly global Chinese competitors.

 

Non-market strategies

Surprisingly restrained beforehand, official state propaganda and Chinese social media has turned uglier in 2019 as a result of the trade war. Anti-US pledges have arisen on the Internet and other Chinese media outlets to “fight” against US “bullying” by boycotting American products.17 Chinese outbound tourists, a massive source of revenue for some foreign firms, might increasingly focus their cash on “more welcoming nations” than the US.18 And the growing trend of skilled Chinese workers preferring to work for Chinese rather than foreign firms may very well quicken with the added incentive of increased US investigations into Chinese economic espionage. Although it is unclear if these burgeoning trends will be more serious in the future, to be safe, Western multinationals need to respond with smart non-market strategies.

European firms might capitalise on decreases of Chinese tourism to the US by ramping up marketing for European destinations.

Firms should engage directly with the US government and via US industry associations to ask for a more measured approach and resolution to the trade war. Some firms have already adopted this strategy: in May 2019, 173 Western firms together wrote to President Trump arguing that “It is time to bring this trade war to an end”.19

In the Chinese market, strategies should be adopted to present the best face possible to the Chinese government, suppliers, alliance partners, and household consumers. Western firms’ messaging, both via trade associations and on social media (e.g., Weibo and WeChat), may wish to strategically establish a measured distance from the US governments’ and some US firms’ more heavy-handed tactics. Corporate social responsibility (CSR) activities across China could also be ramped up in the instance that the trade war increases perceptions that Westerners at large are becoming aggressors towards China. 

 

Surviving the trade war

While redrawing manufacturing supply chains has been on the forefront of many managers’ responses to the US-China trade tensions, effectively doing so is more complicated than many believe. Further, smart intellectual property, innovation, and non-market strategies are also critical to weathering the long-term battle that appears to be at hand. Some of these strategies may also be useful to firms facing other trade wars in the future – a probable prospect in an era of rising neo-populism and protectionism.20

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About the Authors

Dan Prud’homme (EMLV Business School) is an associate professor at EMLV Business School in Paris, France. He is also a non-resident research associate at Duke University’s Kunshan, China campus. Previously, for a year after his doctoral studies, Dan was a visiting research fellow and a teaching fellow at University of Oxford (UK). Prior to joining academia, he worked in the private sector in Beijing and Shanghai, China. Dan’s research interests include intellectual property and innovation strategies, global strategy, and strategies focused on the Chinese market.

 

Mark Cohen (University of California, Berkeley)  is a Chinese-speaking Intellectual property and commercial attorney with over 25 years experience in emerging markets. Former US government and US Embassy (Beijing) official, former Fulbright Professor (Republic of Slovenia). Extensive experience in management of patent porfolios, IP enforcement campaigns, government and media relations, international trade matters (including WTO issues), and public policy efforts, including antitrust advice. Educated thousands of leading Chinese public and private sector officials on IP matters, and have lectured before business and academic audiences throughout the world. I have also served as an expert witness on intellectual property matters involving Chinese companies.

References
1. AmCham China Member Survey, May 22nd 2019, available at https://www.amchamchina.org/about/press-center/amcham-statement/
2. US firms in China fear ‘retaliation’ against Huawei curbs: Am Cham, available at https://www.bbc.com/news/business-48361689, citing an interview with AmCham Chairman Tim Stratford
3. Maidment, P., 2018. How Western multinationals are responding to the escalating U.S.-China trade war. Harvard Business Review, available at https://hbr.org/2018/12/how-western-multinationals-are-responding-to-the-escalating-u-s-china-trade-war
4. It should be noted that, generally, trademarks are not added to the transaction value for assists.
5. For a list of the various tariff tranches see Section 301 Trade Remedies to be Assessed on Certain Products from China available at https://www.cbp.gov/trade/remedies/301-certain-products-china.
6. See https://twitter.com/realdonaldtrump/status/1156979446877962243
7. Cohen, M. 2019. Unpacking the Role of IP Legislation in the Trade War, available at https://chinaipr.com/2019/05/19/unpacking-the-role-of-ip-legislation-in-the -trade-war /; Prud’homme, D., von Zedtwitz, M., 2019. Managing “forced” technology transfer in emerging markets: The case of China. Journal of International Management; Prud’homme, D., Zhang, T., 2019. China’s Intellectual Property Regime for Innovation: Risks to Business and National Development. Springer; Prud’homme, D., 2019. Reform of China’s ‘forced’ technology transfer policies. University of Oxford Business Law Blog, available at https://www.law.ox.ac.uk/business-law-blog/blog/2019/07/reform-chinas-forced-technology-transfer-policies
8. Cohen, M, 2019, A Federal Circuit with Chinese Characteristics: The launch of China’s New National Appellate IP Court,   see https://chinaipr.com/2019/01/04/a-federal-circuit-with-chinese-characteristics-the-launch-of-chinas-new-national-appellate-ip-court-%E4%B8%AD%E5%9B%BD%E7%89%B9%E8%89%B2%E7%9A%84%E8%81%94%E9%82%A6%E5%B7%A1/
9. Prud’homme, D., Zhang, T., 2019. China’s Intellectual Property Regime for Innovation: Risks to Business and National Development. Springer.
10. Ibid
11. Bureau of Industry and Security, Review of Controls for Certain Emerging Technologies, 83 Fed. Reg. at 58202 (Nov. 19, 2018).
12. See Export Administration Regulations (EAR), Sec. 734.3(b)(3) , which provides that the following types of information are not “subject to the EAR,” regardless of their content: (i) “published” information; (ii) information that arises during, or results from, “fundamental research;” (iii) information released by instruction in academic institutions; (iv) information in patents and published patent applications; (v) information that is a non-proprietary system description; and (vi) certain types of telemetry.  See also Sec. 734.10 on patents specifically.
13. Prud’homme, D., von Zedtwitz, M., 2018. The changing face of innovation in China. MIT Sloan Management Review, https://sloanreview.mit.edu/article/the-changing-face-of-innovation-in-china/; Greeven, M., Yip, G., Wei, W., 2019. Understanding China’s next wave of innovation. MIT Sloan Management Review, https://sloanreview.mit.edu/article/understanding-chinas-next-wave-of-innovation/
14 McKinsey Global Institute, 2018. Outperformers: High-growth emerging economies and the companies that propel them, available at https://www.mckinsey.com/~/media/mckinsey/featured%20insights/innovation/outperformers%20high%20growth%20emerging%20economies%20and%20the%20companies%20that%20propel%20them/mgi-outperformers-full-report-sep-2018.ashx
15. Scheve, K., Zhang, R., 2016. One belt one road: Chinese strategic investment in the 21st Century. Harvard Business Review Case Studies, available at https://hbr.org/product/one – belt – one – road – chinese – strategic – investment – in – the – 21st– century/P87 – PDF – ENG
16. China’s Xi Jinping revives Maoist call for ‘self-reliance’, 2018, https://www.ft.com/content/63430718-e3cb-11e8-a6e5-792428919cee
17. For example, see: Chinese media calls for ‘people’s war’ as US trade war heats up, 2019, https://edition.cnn.com/2019/05/14/asia/china-us-beijing-propaganda-intl/index.html; China’s propaganda machine takes aim at U.S. over trade war, 2019, https://www.nytimes.com/2019/05/14/world/asia/china-propaganda-trade.html; China’s latest weapon in the trade war: Karaoke, 2019, https://www.bbc.com/news/world-asia-china-48359002
18. Trade war is putting Chinese tourists off US, with many opting for ‘more welcoming’ nations, 2019, available at https://www.scmp.com/tech/big-tech/article/3010145/ctrip – ceo – says – trade – war – putting – chinese – tourists – us – many – opting – more
19. FDRA Open Letter to President Trump, May 20th 2019, available at https://fdra.org/wp-content/uploads/2019/05/2019-Footwear-Tariff-Letter-1.pdf
20. Prud’homme, D., von Zedtwitz, M., Arreloa, F., 2019. Strategic responses to neo-populism. The European Business Review, available at https://www.europeanbusinessreview.com/strategic-responses-to-neo-populism/

6 Things to Know About Options Trading

When it comes to investing your money to make a return, the stock market is a go-to method. It allows for many different types of options that you can utilize to achieve the wealth that you want. A popular method that those investing in the stock market utilize is options trading.

What Is Options Trading?

Before we can define just what options trading is, we need to first explain to you what options are. According to business24-7 an option, in regards to the stock market, is defined as a contract that allows an investor to sell or buy a security at a predetermined price for a specified period of time. These options are bought or sold on the options market. Many people are actually making a good passive income doing Nadex binary options trading.

There are two main terms that you’ll need to understand when it comes to options trading. When you go to buy an option, then it’s referred to as a call option. If you go to sell an option, then it’s referred to as a put option. It’s important to note that options don’t give you ownership or stock in a particular security. It’s the exercise of an options agreement that allows you to get ownership.

What Is Exercising An Option?

As you learned above, an option is a contract that allows you the opportunity to buy or sell a security. Let’s say you purchased an option to buy 100 XYZ stock at say $5.00 per share for the next 30 days. On day 26, the price of the stock is up to $10.00 per share.

You can exercise your option to buy 100 shares of the XYZ stock at the $5.00 price instead of the market value of $10.00 per share. Executing your contract is called exercising in the options market. You’re not required to execute any options agreement that you enter into.

What Is The Strike Price?

When you enter into an options agreement, there are many specifics laid out. One of these agreed-upon terms is the strike price. The strike price is defined as the agreed-upon purchase price for the underlying security. If you have a call option, then the strike price is the price you agreed to buy the stock at. If you have a put option, then the strike price is the price that you agreed to sell the stock at.

What Is An Options Premium?

When you enter into these beginner options trading contracts, you’ll need to purchase them. The premium is the price that you pay for the options agreement. This changes daily and is a percentage of the overall value of the asset. The seller of options agreements will utilize both the current trading value and the strike price of the options contract to determine what its premium will be.

Most Contracts Are For 100 Shares

When you’re first starting in options trading, you must realize most contracts are sold in groups of 100 shares. So, if your contract is to buy a share at $5.00 apiece, you’ll actually be buying 100 shares that will cost you a total of $500.00. You should be very careful when first investing to ensure that you know just what your options contract states as there is a wide difference in paying for 100 shares compared to 1 share.

Understanding Stock Option Quotes

When you go to the options market, you’ll receive a stock option quote in a specific way. Understanding the components of the quote and how to read it is vital to your overall success in options trading. Let’s take a look at an example stock quote below.

You get a stock quote that shows the following:

XYZ December 1, 2019 70 Call AT $4.00
XYZ – This reveals that stock that the options agreement is for.
December 1, 2019 -This is the expiration date of the options agreement.

70 – This is the strike price for the contract.

Call – This indicates this option to be for buying securities.

$4.00 – This is the premium per share. Based on 100 shares for the option, that’s $400 for the contract.

Hopefully, you now have a better idea of what options trading is. Options trading is a great area to start as a beginner as it’s very simple to understand and allows you to invest with less risk than traditionally purchasing stocks.

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Tokens of Technical Progress: Blockchains, Data Dysphoria & Fantasies of Control

By Dr Robert Herian

The discourse of data sovereignty (‘taking control’) at first blush implies empowerment of the data subject – Facebook’s Libra project explicitly uses this language and ideal in relation to their subscribers. However, as the author argues, ‘Taking control’ is only an illusion or, more precisely, a fantasy articulated through the notion of data sovereignty and constructed by neoliberal capitalism.

Cyberspace, as a shared dimension but unequal community, is in a moment of unease and alienation over the ways and means of data creation, dissemination and preservation, including methods of storage on- and offline. Communication and circulation of commercial and personal data increasingly occurs amid threats of intermeddling and exposure to varieties of fraud and exploitation. This unease is symptomatic of scandals involving the ‘psychological profiling’ of personal data in the course of supposed civic and democratic processes, and the growing uncanniness of digital social spaces. The company Cambridge Analytica, whose ‘data harvesting’ practices and psychographic analyses of user content from sources such as Facebook led to accusations of dubious interventions in and effects on the US Presidential elections and UK European Union Referendum1. Facebook’s Mark Zuckerberg’s subsequent tour of apology, confession and defiance in front of US government and European Commission representatives in early 2018 amid accusations that the company ‘weaponised’ personal data only served to add intrigue and consternation to the prevailing climate of unease2. Recently, the shortcomings of Facebook with regard to data privacy have undergone fresh scrutiny with the announcement that the social networking Titan plans to issue their own cryptocurrency, Libra3.

 

New data horizons

The fall-out from high-profile and rather salacious examples of unfair or unreasonable data use is a type of subscriber/subject unease that I refer to as data dysphoria, which involves but is not limited to specific examples of the dubious commercial data practices that pervade cyberspace. In conjunction with this unease ideas and mechanisms to ‘take (back) control’ of one’s personal data have emerged that provoke the desire for meaningful practices of data self-care in the subject, but which, I argue, instead entangle the subject in a burgeoning mesh of fantasy in which control and data sovereignty are always possible but never attainable. The extent to which data subjects are actually capable of or willing to assume control of personal data in a fully informed way is entirely unclear if not entirely unrealistic. Yet it fits ideologies of technological solutionism perfectly, enforcing the belief that new data horizons must be seized first and questioned later – a coda of the classic Silicon Valley mantra: “move fast and break things”. Use of a banking app on a smart phone to manage one’s finances is convenient, for example, but it does not require the user to negotiate the intricacies of global finance. On the contrary, the convenience of banking apps masks the extent to which personal finance (the credit held in a current or savings account) is embedded in a vast complex of different financial products and networks over which the user has little insight and no meaningful control. Banking apps, therefore, represent a de minimis form of user control, not a radical mode of individual financial liberation. This model is articulated by a wide range of contemporary data management platforms, mechanisms and applications, all of which are directly or indirectly hungry for data4.

Data dysphoria and its corresponding structure in fantasy describe part of the conscious and unconscious negotiations subjects make with networks, systems and the increasing levels of computational autonomy and authority that are in every sense alien and radically unknowable to the vast majority of users caught by and within them5. Importantly, as symptomologies, data dysphoria and fantasies of control describe affects not online but in the ‘real world’. Cyberspace (including databases, networks, systems, or interfaces) in this case does not “solve” the “problems” qua messiness inherent in human endeavour (as long, that is, as the primary role of cyberspace is to serve humanity) but represents ever expanding frontiers into which human psychology inevitably moves, may flourish but, equally, falters.

 

The discourse of data sovereignty (‘taking control’) at first blush implies empowerment of the data subject – Facebook’s Libra project explicitly uses this language and ideal in relation to their subscribers. But, I argue, data sovereignty satisfies ideals of consumer protectionism above all else, that is, sovereignty of data subjects is supported and promoted insofar as subscribers remain efficient, engaged economic subjects within the ambit of neoliberal capitalism. Data subjects who without demur bear a financial cost for taking part in history must invest energy into creating new “free” markets and ensuring all social life is calibrated to the logic of those markets6. It is, in this sense that blockchains, as a distributed and decentralising mechanism for improving economic efficiencies, impregnate those who use them with such logics. The irony being that the self-care insisted upon by data subjects who are “sovereign” assumes nothing more than a form of control contingent upon the constraints placed on the subject by neoliberal capitalism, and therefore is not a form of control the data subject is free to exercise or enjoy at all7. To paraphrase Jodi Dean, taking control in this instance does not delineate data subjects from a rest of us ‘whose work, lives, and futures are expropriated, monetized, and speculated on for the financial enjoyment of the few’, instead it serves to highlight the actual complicity of those data subjects in sustaining neoliberal capitalism and ‘the extent of the class power of an elite that has gotten us to think in terms of competition, efficiency, stock markets, bonuses, and financial success’8. ‘Taking control’ is thus an illusion or, more precisely as this essay argues, a fantasy articulated through the notion of data sovereignty and constructed by neoliberal capitalism, one, however, ultimately reaffirmed and maintained by the data subjects caught within it.

 

Fantasies of control

The mainstreaming of blockchain technology in the present moment of data dysphoria is no accident: it is part reaction to it, and part exploitation of it. The technology satisfies, at least in theory, ‘problem’/’solution’ matrices with deep roots in a wide variety of global economic, political, social, legal and cultural contexts – too many to cover or mention during the course of this essay. ‘Solutions’ dreamt up by a variety of stakeholders including entrepreneurs, venture capitalists, and technologists who consider blockchain-led socioeconomic and political characteristics of transparency, disintermediation, post-trust, and so on to be the keys to healthier cyber-socialites and ontologies. Capitalism is not seen as a problem to be solved, but rather the architecture supporting blockchain concepts and implementation. Notions of data or identity self-sovereignty derive from capitalist and, capitalism’s ‘mutant form9, neoliberal structures in fantasy that insist on the perfection and wholeness-of-being attainable through economic practice and self-care. Data practice and data self-care emerge as species of broader capitalist practice: a practice of the practice that maintains capitalism’s prominence whilst resisting countervailing and critical notions of data sovereignty from non-market and non-competitive communities on- and offline.

There are no shortage of businesses promoting the benefits of blockchain-led digital economies through idealisations of secure, peer-to-peer, data-as-property (e.g. tokenisation) paradigms that promise to empower users by allowing them to unlock ‘value’ from their personal data in the form of ‘micropayments’ – a model of granular payments that individuals, as well as corporations, can derive from all forms of data exploitation large and small. Far from novel enterprises, a number of these business models necessitate conventions in offline and off-chain markets and consumerism models that require high levels of interoperability between different interfaces, whilst also sustaining forms of centralisation and mediation that correspond closely to the logic of existing patterns of commercial development that blockchain, it was claimed (lest we forget), was going to destroy.

Peer-to-peer digital economies do not eschew but rely upon transactions of personal data within traditional (capitalist) business models. Data subjects auto-exploit by relying on data sovereignty mechanisms, models, skills and techniques given to them as indisputable tools of engagement and self-management, a clear contradiction if we take as our definition of sovereignty ‘the receiving of a general recognition of exclusive domain and consequent possession of the capacity to establish rules of conduct within a particular field of action’10. On this point we see the root of the fantasy of control begin to show itself, because the façade of subject/object choice as a condition of contemporary economic engagement is revealed to be the mere belief in the organisational networks enveloping the ‘free’ economic subject as data subject. In other words, it is an illusion that a data subject has ‘capacity to establish rules of conduct within a particular field’ because ‘a general recognition of exclusive domain’ has never existed but is instead always already capitalism’s domain and the data subject a material site for its ideological (re)production11.

‘Self-sovereign identity technology can put the control [of personal data] in the hands of individuals’ Andrea Tinianow has claimed12. For control to manifest in the manner Tinianow envisages would involve wholesale transformations of the present model of socioeconomic organisation and hegemony, however, that is, the transformation of capitalism into a new state of economic organisation predicated on more not less self-interest. Given the fundamental tenets of capitalist ‘free’ enterprise include supply and demand and ‘winner takes all’ market engagements grounded in the necessity of self-interested, competitive economic subjects, it is hard to see how more self-interest is going to fundamentally ‘disrupt’ the prevailing economic model, or, indeed, encourage it towards some specious notion of post-capitalism. But then it is not meant or designed to. Instead it is a fantasy of economic perfectibility by a data subject at work in the model of data or identity self-sovereignty; or, put more simply, capitalism reinventing itself for the sake of preservation.

We are witnessing the rise of a ledger society in which rituals of verification will become more central to the everyday normative functions of society than Michael Power first certainly envisaged two decades ago.

What is perhaps most astonishing about the blockchain moment, one which is definitively neoliberal capitalist, has been the ability of stakeholders to convince the world of the desirability of digital ledgers as immaterial objects of ritual and devotion. Based on its potential for expansion the digital ledger is arguably an example of greater transformation of the mundane into the spectacular than even mobile phones achieved with the inauguration of smart phones13. We are witnessing the rise of a ledger society in which rituals of verification will become more central to the everyday normative functions of society than Michael Power first certainly envisaged two decades ago14. Within this paradigm the ledger assumes a vast and growing status as ritual object and multivocal symbol, its referents ‘not all of the same logical order’ but ‘drawn from many domains of social experience and ethical evaluation’ for the purposes of allowing data subjects to perform economically15. The result is a jumble of misunderstandings as to the precise nature and value of blockchain as a technology, and reductionist narratives of blockchain as a global economic panacea rushing to fill gaps evacuated of critical reason and reinstitute what Herbert Marcuse long ago called the ‘comfortable, smooth, reasonable, democratic unfreedom’ that ‘prevails in advanced industrial civilisation, a token of technical progress’16.

The implications of blockchain fermenting deeper economic reason in cyberspace, and transforming it into an ever more perfect market, is not something to be automatically welcomed. Through such propositions we risk an impoverished humanity existing through technology beset by and implicated in the ideals and practices of financial economy first and last. ‘Networked communication and information technologies are exquisite media for capturing and reformatting political energies’, argues Jodi Dean, they ‘turn efforts at political engagement into contributions to the circulation of content, reinforcing the hold of neoliberalism’s technological infrastructure’17. Where blockchain figures in Dean’s analysis is still evolving as the technology moves from the brute economics of cryptocurrencies to more obvious political domains such as the provision of public services and democratic accountability vis-à-vis voting and government transparency initiatives. Contemporary ledger technologies and the peer-to-peer networks they support not only enable contributions to the circulation of content, as Dean expresses it, but more accurately economize contributions in accordance with ever more concise neoliberal values. The data subject within peer-to-peer networks must thus search for and anticipate each new transaction and exchange as fulfilment of the fantasy of data sovereignty

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About the Author

Dr Robert Herian is Senior Lecturer in Law at The Open University.  His research involves critical legal analyses of new technologies.  He regularly presents work at domestic and international conferences and publishes widely in journals, edited collections, and online. He is author of Regulating Blockchain: Critical Perspectives in Law and Technology (Routledge 2018)

References
1. Olivia Solon and Oliver Laughland, “Cambridge Analytica closing after Facebook data harvesting scandal”, The Guardian, 2 May 2018. https://www.theguardian.com/uk-news/2018/may/02/cambridge-analytica-closing-down-after-facebook-row-reports-say (accessed 4 June 2018)
2. Carole Cadwalladr and Emma Graham-Harrison, “Zuckerberg set up fraudulent scheme to ‘weaponise’ data, court case alleges”, The Guardian, 24 May 2018. https://www.theguardian.com/technology/2018/may/24/mark-zuckerberg-set-up-fraudulent-scheme-weaponise-data-facebook-court-case-alleges (accessed 4 June 2018)
3. See: https://libra.org/en-US/white-paper/ (accessed 5 August 2019); and Robert Herian, “Libra, Iran and the potential end of cryptocurrencies as we know them”. The Conversation, 1 July 2019. https://theconversation.com/libra-iran-and-the-potential-end-of-cryptocurrencies-as-we-know-them-119606 (accessed 5 August 2019)
4. See, for example: Nick Srnicek, Platform Capitalism. 2017. Cambridge: Polity 
5. As James Bridle maintains: ‘If we do not understand how complex technologies function how systems of technologies interconnect, and how systems of systems interact, then we are powerless within them, and their potential is more easily captured by selfish elites and inhuman corporations’ (James Bridle, New Dark Age: Technology and the End of the Future. 2018. London: Verso, pp.2-3)
6. Adam Greenfield makes a similar point but specifically targeted at the role Ethereum, the organisation behind the other major public blockchain alongside the Bitcoin blockchain, is having on shaping individual adaption to and adoption of blockchain applications such as smart contracts and tokens (i.e. Ether) allowing for participation in decentralized autonomous organisations (DAOs).  See: Adam Greenfield, Radical Technologies: The Design of Everyday Life. 2018. London: Verso     
7. See: Robert Herian. Regulating Blockchain: Critical Perspectives in Law and Technology. 2018. London: Routledge
8. Jodi Dean, The Communist Horizon. 2012. London: Verso, pp.69-73
9. Byung-Chul Han, Psycho-Politics: Neoliberalism and New Technologies of Power. Translated by Erik Butler. 2017. London: Verso, p.5
10. Sarah Manski and Ben Manski, “No Gods, No Masters, No Coders? The Future of Sovereignty in a Blockchain World”. Law & Critique. 2018. (forthcoming)
11. Louis Althusser, On Ideology. 2008. London: Verso, pp.46-47
12. Andrea Tinianow, “GDPR Isn’t the Answer, But Blockchain Is”, Forbes. 4 June 2018. https://www.forbes.com/sites/andreatinianow/2018/06/04/gdpr-isnt-the-answer-but-blockchain-is/#75e88f8848bd (accessed 5 June 2018)
13. Of course, there are now “blockchain-enabled” smart phones as a marriage of the two phenomena.  See: https://hackernoon.com/a-closer-look-at-three-blockchain-smartphones-28b746976d22 (accessed 8 April 2019)
14. Michael Power, The Audit Society: Rituals of Verification. 1997. Oxford: Oxford University Press
15. Victor Turner, The Ritual Process: Structure and Anti-Structure. 1969. New Brunswick: Aldine Transaction, p.52
16. Herbert Marcuse, One-Dimension Man: Studies in the ideology of advanced industrial society. 2002. London: Routledge, p.3
17. Jodi Dean, Democracy and Other Neoliberal Fantasies: Communicative Capitalism and Left Politics. 2009. Durham: Duke University Press, p.32

The politics of Russian extraditions

By Jasvinder Nakhwal and Rachel Cook

Russian assurances on prison conditions are highly topical and have been crucial to the UK courts’ decisions in recent cases on whether to extradite individuals to the Russian Federation. Extraditions from the UK to Russia are, for the time being, at a standstill, owing to deficiencies in the independent monitoring of Russian prison conditions, which undermine the assurances provided by the state, and pending evidence to the contrary.

 

The UK’s relationship with the Russian Federation is complex, to say the least. In 2006, the poisoning of Alexander Litvinenko demonstrated how Russian operatives are well able to administer a deadly poison in broad daylight on British soil. Despite stabilising for a short while, UK-Russia diplomatic relations were once again plunged into conflict in 2018, with the poisoning of Sergei and Yulia Skripal in Salisbury. Both incidents caused a major diplomatic crisis and legal consequences, including for Litvinenko’s poisoning, a Public Inquiry and a serious extradition standoff.

Despite President Putin’s denial of any involvement in the Skripals’ poisoning, the UK publicly condemned Russia and, last year, expelled 23 diplomats from the Russian Embassy in London. Condemnation also came from the European Union, which sanctioned the heads of the Russian military intelligence for their suspected involvement, and the US, which imposed sanctions on the basis that the Russian government was responsible. Then, in August 2019, the US imposed further sanctions on Russia relating to the state’s refusal to guarantee that it will no longer use chemical weapons.

The UK’s view is that Russia was willing to violate the Chemical Weapons Convention, to which it is a signatory, and to breach international law by undermining the UK’s sovereignty. The UK government’s clear position is that Russian assurances are implausible and unreliable.

 

Climate of Crackdown and Enforcement

When responding to the Salisbury crisis and action against the Russian state, then Prime Minister Theresa May declared: “…we will continue to bring all the capabilities of UK law enforcement to bear against serious criminals and corrupt elites. There is no place for these people – or their money – in our country”. It can be difficult for the UK authorities to differentiate between “these people”, i.e. Russians who are serious criminals and corrupt elites, and those who are merely accused of, or are presumed to be such individuals. An obvious example of how this distinction has the potential to be applied arbitrarily is the US Treasury’s list of those considered for US sanctions. The list names every senior member of Russia’s political administration and, replicating the Forbes rich list, every Russian oligarch with a net worth in excess of $1 billion. It appears that the starting point is that all Kremlin politicians and wealthy Russians are suspicious.

In parallel with these pronouncements, the UK has seen the introduction of Unexplained Wealth Orders, Account Freezing Orders and various anti-money laundering rules, providing the enforcement authorities (both UK and foreign) with key investigative tools in combatting financial crime. New legislation will also see a public register on the ultimate beneficial owners of UK property introduced in 2021, with a view to preventing criminals from using the UK property market to launder criminal funds. Furthermore, with Deutsche Bank likely receiving a significant fine for its role in the $20 billion Russian laundromat case. Financial institutions are well aware of the risk of criminal investigation for money laundering and increasingly cautious when conducting due diligence and accepting funds from wealthy foreigners. This applies, in particular, to individuals who are deemed to be politically exposed persons with links to foreign governments. 

Extradition treaty

On the other hand, our diplomatic agreements for cross-border cooperation with the Russian Federation remain and continue to be honoured, by the UK at least. Given the Russia’s membership of the Council of Europe, the UK has even relieved the Russian Federation of the need to demonstrate a prima facie case when the UK extradition court decides whether or not to allow extradition to Russia. 

In 2007, the Russian government refused to extradite Mr Lugovoi, who was accused in the UK of poisoning Mr Litvinenko. There is no doubt that if asked to do so, Russia would likewise refuse to extradite the Russian citizens charged with poisoning the Skripals. It is the case that Russia, as a matter of policy, does not extradite its citizens to any state. However, this has been seen as a convenient basis on which to avoid bringing the alleged killers to justice.

It is not uncommon for Russia to make extradition requests to the UK for current or former Russian nationals living here. Under the UK extradition legislation  those requests are reviewed at the initial stage by the Secretary of State for the Home Department, and under the terms of the diplomatic arrangements with the Russian Federation, are almost always accepted and passed to the UK extradition court. These extradition proceedings are usually resisted by the wanted individuals on several grounds, including that the request is made for the purpose of persecuting or punishing them on account of their political opinions; that any extradition would be contrary to their human rights including their right to a fair trial; and that Russian prison conditions would breach their right not to be subjected to inhuman and degrading treatment or punishment. There are well publicised cases with some of the most egregious examples of appalling treatment in Russian prisons, to intimidate, harass and ultimately to stifle. These have led to the development of disease, mental illness and death. Even in general, where the prisoner is not a political target, Russian prisons are reported to be overcrowded, with poor sanitation and numerous other problems.

[su_pullquotes]What is perhaps most startling about recent UK extradition case law is that the prevailing political backdrop has played a relatively limited role in the UK courts’ decisions on whether to accept such assurances and extradite individuals to Russia.[/su_pullquotes]

Other defence arguments that are typically made arise from real concerns about a lack of a fair trial (a human right enshrined in Article 6 of the Convention). This is in circumstances where ‘telephone justice’ (whereby informal influence or pressure is exerted on the Russian judiciary) is the norm, and conviction rates are as astonishingly high as 99.75 per cent.

One way in which Russia has responded to the UK courts’ concerns about these issues, in particular that prison conditions would amount to inhuman treatment, has been to provide assurances (i.e. promises) to the contrary, and in essence that the human rights of the individual in question would be respected. What is perhaps most startling about recent UK extradition caselaw is that the prevailing political backdrop has played a relatively limited role in the UK courts’ decisions on whether to accept such assurances and extradite individuals to Russia.

 

Brief history of extradition cases

All extradition requests heard in England and Wales are initially heard in Westminster Magistrates’ Court. In the mid-2000s, the Senior District Judge of that court stopped extraditions to Russia until the state was able to demonstrate that the prison conditions were not inhuman or degrading. This position remained the same in 2012, when the European Court of Human Rights held in Sergey Ananyev’s case that the prison conditions in Russian remand prisons (where prisoners were held before trial) breached human rights . The Ananyev judgment annexed a list of 80 other judgments demonstrating human right breaches in Russian remand prisons. The European court said that “the set of facts underlying these violations was substantially similar: detainees suffered inhuman and degrading treatment on account of an acute lack of personal space in their cells, a shortage of sleeping space, unjustified restrictions on access to natural light and air, and non-existent privacy when using the sanitary facilities”.

In 2012, an extradition request for Georgy Trefilov was refused, partly on the basis that the conditions of the remand prison might amount to inhuman or degrading treatment. There followed a series of Russian extradition cases where the court held that any person detained in a Russian prison was at real risk of inhuman or degrading treatment, effectively halting further extraditions.

At that stage, regardless of what crime they had been accused, or whether it was a politically motivated prosecution, anyone in the UK being sought by Russia was able to resist extradition by relying on the poor state of Russian prison conditions.

 

Assurances

The position changed again in 2015. The Senior District Judge of Westminster Magistrates’ Court declined a Russian extradition request for Igor  Kononko on the grounds that he could not have a fair trial, but in doing so, he indicated that the court would be prepared to accept assurances from Russia about prison conditions to confirm that they would not amount to torture or inhuman or degrading treatment or punishment.

In response to the judge’s indication that the court was open to assurances, the Russian Federation began to provide them. In 2016, in Evgeny Korolev’s case, Russia provided assurances about prison conditions, but the UK court deemed them to be too vague and refused the extradition request. The following year, in 2017, the UK court in Stanislav Dzgoev’s case accepted Russian assurances on prison conditions. Mr Dzgoev appealed to the High Court. In refusing his appeal, the High Court went so far as to articulate the assurances that they required the Russians to give, which were subsequently provided in that form. Mr Dzgoev was extradited to Russia.

Further Russian extradition cases followed, including that of Egor Schuppe, the son-in-law of Boris Berezovsky, a late Russian oligarch and prominent Putin critic. During this period, those individuals who successfully resisted extradition to Russia usually did so based on arguments that they could not have a fair trial in Russia or that their prosecutions were politically motivated. Arguments on prison conditions failed because of what were deemed to be satisfactory Russian assurances, promising special conditions for those being extradited that were sufficient to allay the UK courts’ concerns about human right breaches.

In October 2017, Westminster Magistrates’ Court acceded to a request to extradite Alexey Shmatko, rejecting all his arguments, including those relating to prison conditions, again owing to an acceptance of Russia’s assurances. Mr Shmatko appealed to the High Court and his extradition was paused pending the outcome of his appeal.

In the meantime, in 2018, the UK court found that another Russian, Alexander Ioskevich, could be extradited, despite him also raising arguments on prison conditions and breaches of human rights. Like Mr Dzgoev, Mr Ioskevich was extradited to Russia. Mr Ioskevich’s lawyers had raised concerns that Russian assurances could be reneged upon once he was in Russia, by which time it would be too late because he would already be there. The High Court held that Russia had a powerful incentive to honour its assurances because to do otherwise would impact negatively upon the willingness of the UK courts to accept future assurances. This is a point of concern given that a failure to adhere to assurances given meet no sanction, other than acting as evidence of a breach to support arguments in subsequent extradition cases, and only if vulnerable prisoners are willing to give that evidence.

 

Recognition of political backdrop

Alexander Shapovalov, unlike the other Russians mentioned above, lived in Scotland, not England, and, in 2018, his extradition hearing took place in Edinburgh rather than London. Unlike the English court, Sheriff Ross rejected the Russian assurances on prison conditions provided in that case, distinguishing Dr Shapovalov’s case from those of Mr Dzgoev and Mr Ioskevich. The Scottish court expressed that there was a good reason to reconsider the benefit of doubt afforded to Russia and the presumption that their assurances on prison conditions could be relied upon. The Scottish judgment referred directly to the Skripal poisonings and the diplomatic breakdown in the relationship between the UK and Russia since the Ioskevich case. The Scottish court declared that “any trust of the Russian Federation as a member of the Council of Europe must be placed in some question by the sanctions visited on them by that body, the non-payment of their financial contribution, and the possibility… that the Russian Federation may withdraw from the Council of Europe”.

The Shapovalov judgment was not binding on the Westminster Magistrates’ Court. However, appeal judgments from the UK High Court are binding on the Magistrates’ Court. In 2019, the UK High Court dismissed the lower court’s decision to extradite Mr Shmatko finding that the Russian prison assurances could not be relied upon. This was largely on the basis that there was insufficient independent monitoring of the Russian prison in which Mr Shmatko would be held if he were to be extradited. The Russian assurances were found to be inadequate. Mr Shmatko would not be extradited on the basis of the facts of his case. 

The Shmatko judgment went further and expressed that while it was not necessary to consider it in this case, the court could see “good reason to reconsider the benefit of the doubt accorded to the Russian Federation as a member of the Council of Europe in cases of this kind”. The court was raising concerns about the acceptance of Russia’s assurances generally, regardless of the evidence on a lack of proper prison monitoring.

In 2018, in Alexander Zmikhnovskiy’s extradition proceedings, similar arguments were made on prison conditions to those made by Mr Shmatko in his appeal, and Mr Zmikhnovskiy’s extradition was refused. Similarly, it was partly on the basis of limited prison monitoring. A post-script to the Zmikhnovskiy judgment noted that Russia had provided insufficient information about prison conditions and that it was fast becoming the UK court’s view that the Russian Federation should support any request for extradition with evidence, such as a video or photographs of any prison cell subject to an assurance, and that Russia should re-consider its view that experts are not allowed to visit the prisons in question. This led to a summarily discharge from extradition in a subsequent case of Dmitry Sokolov.

The onus is now on Russia. If it wants the UK courts to extradite individuals, it will need to engage more fully to satisfy the courts that prison conditions will not breach human rights.

 

Prison conditions

The UK court (and the Secretary of State) has an obligation to consider each case separately, even if the court has been presented with similar country-specific evidence on another case.

The issue of prison conditions is fundamental to recent judgments refusing extraditions to Russia. Russian assurances that it will house those extradited in special prison cells that will not breach their human rights must be understood against the backdrop of the conditions of the general prison population. The reality is that there are numerous reports of physical violence and humiliating, psychological torture in Russia’s prisons, perpetrated by both the prison guards and other inmates unimpeded or even encouraged by officers. There has been extensive media coverage of the fates of Mikhail Khodorkovsky and Sergei Magnitsky, which is somewhat historical. However, the threat of torture and inhuman treatment in Russian prisons is current.

In July 2019, the Russian opposition leader, Alexi Navalny, was serving a 30-day sentence for encouraging followers to attend an anti-government protest. While in prison, he became ill and was taken to hospital. The doctor suspected that Mr Navalny had been poisoned and, contrary to the doctor’s medical advice, he was discharged from hospital by the prison officers and returned to the prison. While facts continue to emerge about this recent event, there is already a list of potential human rights breaches in this single example. In the absence of reliable assurances from Russia, the risk of human rights breaches in extradition cases is very real. If assurances cannot be relied upon because the Russian Federation cannot be trusted, what protection is there for those extradited?

 

Next steps

The UK court has informed Russia what it needs to do in order to satisfy the Magistrates’ Court. It must engage meaningfully with the UK proceedings. The UK courts have not yet refused to accept the Russian assurances on the basis that the promises are simply unreliable because they come from the Russian authorities. The main contention at the moment is the lack of independent monitoring of prison conditions. With some minor changes to Russian domestic legislation, this problem could, in theory, be rectified, but this would mean a fundamental shift in the way in which criminal justice operates in Russia. 

[su_pullquotes]The UK court system’s independence from the UK government may have caused it to be slow to factor the political background into its consideration of the credibility of Russian assurances on human rights.[/su_pullquotes] 

Given the political backdrop, observers may find it difficult to believe that the UK courts would continue to accept the Russian assurances at face value. The constitutional separation of the UK’s government and judiciary means that the government cannot force its views on the courts. It is the UK courts’ responsibility to determine whether the Russian prosecutions, which are the subject of the extradition request, are politically motivated or whether they should rely upon assurances provided by the Russian authorities. While the political dimension of the UK-Russian relationship has not yet had the direct impact on extraditions that one might expect, the fact that the High Court and the Scottish court have begun to challenge the benefit of the doubt given to the Russian state in their judgments suggests that this may change.

The UK court system’s independence from the UK government may have caused it to be slow to factor the political background into its consideration of the credibility of Russian assurances on human rights. However, the UK courts’ attitude and approach to Russian assurances and prison conditions is in the process of further development, which currently, happens to have benefitted those whose extradition is being sought. Whether and if so, how, Russia will respond to these changes and how the courts will approach future Russian assurances remains to be seen. The extent to which the courts’ decision making should take account of the actions and credibility of the requesting state is a worthy debate, keeping in mind that the integrity of the UK courts must remain sacrosanct.  Proper debate is also needed on the question of whether it is suitable to rely on mutual recognition by virtue of membership of an organisation of which the UK is a part, such as the Council of Europe, even when the operation of the criminal justice system in that state is severely flawed. In contrast to the criticisms made of the Russian system, in which the judiciary is described as subservient to the political will of the government and/or powerful political figures, the independence of the British judiciary remains fundamental in the pursuit of justice.

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About the Authors

Jasvinder Nakhwal has over 10 years’ experience acting for many high-profile Russian nationals in numerous complex extradition cases involving requests from the government of the Russian Federation. She has succeeded in preventing extradition in all those cases on a number of grounds, including political motivation, abuse of process and human rights.

Rachel Cook is Senior Associate at Peters & Peters. She works on a range of fraud, white-collar crime, tax enforcement and regulatory matters. Whilst she has significant experience acting for clients in extradition proceedings, Rachel also regularly makes successful representations to the Secretary of State, Home Office and Metropolitan Police Extradition Squad in order to defeat extradition requests without the need for a substantive hearing.

Authentic Leadership: From Theory to Practice

By Mostafa Sayyadi

Executives are under a tremendous amount of pressure in today’s global economy. This article is set in place to inspire leaders to authentically lead their companies to meet and exceed the challenges of not only today but also what we see as an onset of new technological advances in the future.

 

Why Leadership Studies Have Failed?

Leadership, when assessed from a distance, is somewhat elusive. Four scholars that are well known in the Academy of Management, one of the largest leadership and management organisations in the world by the names of Francis Yammarino, Shelley Dionne, Jae Uk and Fred Dansereau found some mismatches between theoretical concepts of leadership and empirical investigations, and explained that while the theoretical concepts of leadership are extensive, empirical studies could not have sufficiently supported these theoretical concepts.1 In fact, past studies about leadership lacked a multilevel approach, and only focused on downward control. Not accounting for a middle-level leader who takes a two-way approach to influence both superiors and subordinates – more of liaison. Another reason was that there is no determined set of variables used to investigate effective leadership, owing to the diversity of leadership theories and models with different perspectives about effective leadership. A third reason relates to studies about leadership that lack a systematic approach and stem from interdisciplinary approaches. Thus, leadership has remained relatively silent on how to integrate theories, methods, and concepts from diverse disciplinary domains to provide a rich basis for understanding the true leadership theoretical and applicable concepts. 

 

There is no determined set of variables used to investigate effective leadership, owing to the diversity of leadership theories and models with different perspectives about effective leadership.

There is another reason that leadership studies have failed to disclose the nature of filling the leadership gaps between performance and success. In many instances, there is no direct connection between leadership theoretical models and today’s changing situations. 

Companies in general confront challenging situations in which they need to proactively respond to every environmental demand, a comprehensive leadership model can be a basis for understanding and perhaps anticipating these emerging issues. This idea has been reinforced by two scholars in Texas Tech University by the names of John Blair and James Hunt who state that “the issue here is not basic versus applied research, but research that is or is not relevant to current or projected organisational problems.”2 Leadership theoretical models reflect positivist philosophy, which manifests itself in exploring the current situation rather than investigating the most desired situation for an organisation.

Many executives wonder what academic and leadership writers are trying to explain via models and theories. There really is not much difference except that a theoretical framework has been tried and tested while a model may be an application that leaders can learn and teach others. For instance, various theories and models are presented in an attempt to portray the concept of leadership. However, there have been several shifts in the study of leadership, and subsequently newer approaches to leadership emerged leading up to the emergence of authentic leadership model. While there are many leadership theories and models that leaders can apply, my emphasis will be based upon the authentic leadership theory. This article contributes to practice by identifying the ways in which to develop effective workplaces through authentic leadership.

 

Leadership is Action, Not Traits

Timothy Judge, Ronald Piccolo and Tomek Kosalka started a wave of research that depicted “the leader trait perspective which they felt is perhaps the most venerable intellectual tradition in leadership research”3 that highly recommends an approach in which “great men and women with certain preferred traits influencing followers to do what the leaders wish in order to achieve group or organisational goals that reflect excellence defined as some kind of higher order effectiveness”.4 David Whetten and Kim Cameron summarize them as being honest, inspirational, competent, and credible.5

Shelley Kirkpatrick and Edwin Locke identify the following traits: “drive (a broad term which includes achievement, motivation, ambition, energy, tenacity, and initiative), leadership motivation (the desire to lead but not to seek power as an end in itself), honesty and integrity, self-confidence (which is associated with emotional stability), cognitive ability and knowledge of the business.”6 Burt Nanus suggests several other traits such as initiative, farsightedness, and integrity.7 Accordingly, the leader trait perspective highlights that a leader is significantly different from other employees, and portrays various traits as a leader that followers may not have. Thus, the central idea of the leader trait perspective is that a leader may want to incorporate all or as many of these traits as they possibly can to be successful in today’s hypercompetitive marketplace. This idea of the leader trait perspective being the leadership idea worth acknowledging is one in which all leaders should understand but it lacks some relevance when practiced in the workplace. For instance, Timothy Judge, Ronald Piccolo and Tomek Kosalka explained the paradoxes of this perspective.3 They found that there where, initially, some mismatches between today‘s leadership conditions and those traits which have already been determined for leaders.

In fact, leadership and leaders existed long before the leader trait perspective was initiated as a commonly used behaviour that leaders either possess or should seek to aspire to incorporate into their leadership responsibility. This paradox reconfirms that “traits that were adaptive in ancestral environments might no longer produce adaptive behaviours in modern environments, especially when these environments dramatically differ, as is the case with those of modern humans”.8 The leader trait perspective did enough to provide the necessary evidence that while important, new requirements are continuously required for leadership in global environments today. For example, traits may have different effects on followers depending on the situation, where “a trait which aids one’s ascension to or success as a leader, might in other ways represent threats to one’s success or survival as a leader”.3 The ultimate paradox, however, is that while the leader trait perspective tends to “treat personality variables in an atomistic fashion, suggesting that each trait acted singly to determine leadership effects”.9 In many ways, the leader trait perspective cannot determine if personality traits could not have a linear impact on the outcomes of leadership, and conversely, emphasise the role of other traits as a critical component of this relationship.Traits that perhaps can be exponential existing in one scenario but absent in the other with disregard for success or failure in either situation.

The leader trait perspective, while renowned in nature, has been challenged in terms of successfully developing a limited set of traits for effective leadership. Some scholars conclude that based upon the limitations suggested above, Toni-Carl Fuchs argues that the leader trait perspective could not be applicable at the organisational level or even for global implementation.10 The key is to see the traits, consider implementing them for yourself and your followers and not anticipate a large change in the leadership gaps that exist in the organisation but simply improve individual performance. Executives are, therefore, continuously looking to a set of practices for an effective leadership as a way to manage their workforce better. Executives are taking a serious look at all leadership ideas and suggestions today with the plethora of options available them. Some focus on authentic leadership. In the next section, I present a new facet that executives have embraced – authentic leadership.

 

The Seven Practices Executives Need To Do To Become Authentic Leaders

Seven practices have been determined for authentic leadership: positive psychological capital, positive moral perspective, self-awareness, leadership process/behaviour management, self-regulation, follower development, and organisational context.11,12

Authentic leaders develop a positive work climate in which followers more effectively contribute to a firm’s performance and competitive advantage.

The first practice refers to the idea that authentic leaders develop a positive work climate in which followers more effectively contribute to a firm’s performance and competitive advantage. The second practice is about the authentic decision-making process, which identifies moral dilemmas, and then evaluates and selects the best available alternative to be implemented. In the third practice, Bruce Avolio and William Gardner have left an array of managerial implications for executives such as the fact that authentic leaders continually understand their own beliefs, strengths, desires, values, and aspirations.11 The fourth practice relates to distinguishing the processes and mechanisms whereby an authentic leader influences his/her followers. Authentic leaders can effectively influence their followers through taking various processes such as positive social exchange. The fifth practice is about self-awareness and self-regulation by which authentic leaders effectively align their core values and individual interests with institutional interests and their practices. In fact, a strong alignment can be achieved in values and goals by using a transparent process between leaders and followers. Then, in the sixth practice, an authentic leader takes a coaching role for transforming and developing people. Also, executives today feel overwhelmed with the amount of knowledge coupled with twenty-four hour access with the internet technology.

Therefore, in the seventh practice, executives follow Bruce Avolio and William Gardner that conclude that authentic leaders develop effective workplaces that promote the depth and range of knowledge access and sharing and provide equal opportunity for all followers at various levels of the organisation in order to actively respond to the constant changes occurring in external environment.11

 

In Conclusion

This article has several implications for scholars. First, this study adds to a relatively small body of literature and develops our understanding of authentic leadership theory. Second, this article develops a new and dynamic conception of authentic leadership within organisations. I advance the current literature on authentic leadership by offering novel insights into how authentic leaders affect a firm’s performance and competitive advantage. In particular, I argue that authentic leaders create new values through a transparent process. This article also suggests new insights that identify authentic leadership as a primary driver, which influences individual performance. Further, I suggest that a firm’s ability to enhance knowledge management and recognise the changes occurring in external environments and respond to them can be significantly affected by
authentic leadership.

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Mostafa Sayyadi, CAHRI, AFAIM, CPMgr, works with senior business leaders to effectively develop innovation in companies, and helps companies – from start-ups to the Fortune 100 – succeed by improving the effectiveness of their leaders. He is a business book author and a long-time contributor to HR.com and Consulting Magazine and his work has been featured in these top-flight business publications.

References
1. Yammarino, F.J., Dionne, S.D., Uk, C.J., & Dansereau, F. (2005). Leadership and levels of analysis: A state-of-the-science review. The Leadership Quarterly, 16(6), 879-919.
2. Blair, JD & Hunt, JG 1985, A research agenda for leadership on the future battlefield. In Hunt JG & Blair JD (eds.), Leadership on the future battlefield. Pergamon, Brassey’s, Washington, DC.
3. Judge, TA, Piccolo, RF and Kosalka, T 2009 ‘The bright and dark sides of leader traits: A review and theoretical extension of the leader trait paradigm’, The Leadership Quarterly, vol. 20, no. 6, pp. 855-875.
4. Rost, JC 1991, Leadership for the twenty-first century, Praeger, New York.
5. Western, S 2008, Leadership, Sage Publications, Los Angeles. Whetten, DA & Cameron, KS 1991, Developing management skills, Harper Collins, New York.
6. Kirkpatrick, SA & Locke EA 1991 ‘Leadership: Do traits matter?’ Academy of Management Executive, vol. 5, pp. 48-60.
7. Nanus, B 1989. The leader’s edge: The seven keys to leadership in a turbulent world. Contemporary Books, Chicago.
8. Van Vugt, M, Hogan, R & Kaiser, RB 2008 ‘Leadership, followership, and evolution: Some lessons from the past’, American Psychologist, vol. 63, no. 3, pp. 182-196.
9. Stogdill, RM 1974, Handbook of leadership: A survey of theory and research, Free Press, New York.
10. Fuchs, T 2007, Situational leadership theory: An analysis within the European cultural environment, Ph.D. Thesis, Capella University.
11. Avolio, BJ & Gardner, WL 2005 ‘Authentic Leadership Development Getting to the Root of Positive Forms of Leadership.’ The Leadership Quarterly, 16, 315-338.
12. Ilies, R., Morgeson, F & Nahrgang, J 2005 ‘Authentic leadership and eudaemonic well-being: understanding leader-follower outcomes.’ The Leadership Quarterly, 16(3), 373-394

Lessons on Smart Cities from Post-Earthquake Japan

By Shojiro Nakamura and Hiroyuki Okabe

A crisis can also reveal new pathways of opportunity.

More than eight years ago, what is called the Great East Japan Earthquake struck northeastern Japan. In its wake, the devastated area faced major rebuilding challenges. But leaders in the region are not just reconstructing what had already existed; they’re building a new foundation for future prosperity. Other cities—big and small, in Japan and elsewhere—can learn from their example.

 

Small City, Big Lessons

A leading city in the area’s restoration is Aizuwakamatsu, whose roots stretch back into antiquity and include a castle originally built in the 14th century. Holding Aizuwakamatsu back were issues common throughout Japan and indeed in much of the developed world: shrinking local industry, young people who preferred to live and work in bigger cities, and an aging population matched by low birthrates.

Today, the city of 120,000 is remaking itself as a center of innovation.

New technologies are central to the effort. But it’s not as simple as that. It’s how business and civic leaders are thinking through the strategic and cultural issues that matter most. They’re putting citizens at the center, drawing on big data to make better decisions, and collaborating across boundaries. We see four critical lessons emerging, with implications stretching well beyond Fukushima.

 

Lesson 1: Adopt a “three-way satisfaction” mindset.

Ideas about responsible business didn’t originate in the late 20th century. In Japan, the idea that business should be “good for the seller, good for the buyer, and good for society” goes back hundreds of years to a group known as the Omi merchants. Their concept of sanpo-yoshi can be translated as “three-way satisfaction.”

Sanpo-yoshi is central to one of the main goals of a smart city: to improve civil life with data and smart technologies. In post-earthquake Aizuwakamatsu, one of the first initiatives focused on encouraging residents

to share and use their data with the community. The key tool is a home energy management system, to be installed in individual homes.

In a typical scenario, each manufacturer of a home energy management system would collect data on energy usage from its customers and would use that data for its own purposes. But in Aizuwakamatsu, the city gets a complete picture: it collects data from all the energy system manufacturers in real time. It then uses that aggregate data to help local utilities forecast demand, get more efficient, and improve service. As residents became aware of their real-time energy consumption, they reduced their energy use by as much as 27%. It’s truly a case of three-way satisfaction, and the people of Aizuwakamatsu experienced at firsthand the value of sharing their data with the community.

 

Lesson 2: Design collaborations to involve the whole city.

The idea that leaders should collaborate across boundaries is also well established today. But what’s new for the 21st century is the focus on data. It’s not just a matter of having goodwill or a collaborative spirit. When data is shared, it must be secure and private, and citizens must understand how it is being used and give their active consent.

In 2012, Aizuwakamatsu established a Smart City Promotional Council. The council is a collaboration of city government, the University of Aizu, local companies, and large corporations with local offices—a total of 19 organisations.

The council developed and operates Aizuwakamatsu+, a personalised portal for citizen services. By mashing data provided by residents, along with open data and big data, the platform allows residents to tailor citizen services to their needs. What makes the platform especially valuable is its broad focus, as it covers eight areas important to the lives of citizens, including healthcare, education, agriculture, and mobility.

 

Lesson 3: Use data as a common language across the region.

In order for a smart city to thrive, civic leaders must connect to the region beyond urban borders. Data-driven evidence and insights provide a way of building relationships beyond a single organisation.

For Aizuwakamatsu, which is known as Samurai City, increased tourism is one way to boost an entire region. Though the city was spared the worst of the devastation of 2011, tourism to the city still suffered a heavy blow. The city established a digital Destination Management Organisation to counter the

decrease. Data is again critical to the success of this initiative, as the organisation continuously collects and analyses data on its promotion efforts.

The organisation started with a web site focused on the city alone. But tourists, especially those visiting from other countries, do not generally confine their desires to seeing a single city. They may want to start in Aizuwakatsu and travel to Kitakata, just to the north, to eat the famous Kitakata ramen. They may want to visit picturesque Ouchijuku, also nearby. In the wintertime, they may want to ski on Mt. Bandai.

That’s why the initiative has since expanded its coverage well beyond city borders, linking seven surrounding areas and promoting visits that incorporate sights and experiences across the region as a package. The destination management staff has worked with many local governments to go beyond siloed promotion efforts and to convey the appeal and high points of the entire Fukushima region. In 2018, the city and region saw more than five times the number of tourists as it did in 2015, and the totals are continuing to increase.

 

Self-driving cars are being tested on the public roads in the town of Namie, aiming to boost the return of residents. Source https://meti-journal.japantimes.co.jp/2019-03-15/

 

Lesson 4: Become a center of experimentation for smart technologies.

Regional leaders also face opportunities, and the need, to encourage younger people to stay in the area to work. Some of that may come from highlighting the advantages of staying in a less-populated region.

Aizuwakamatsu’s solution to this challenge: Position the city as an experimental lab—and investment magnet—for smart city innovations. For example, a company seeking to test self-driving cars will have an easier time dealing with regulatory hurdles in a city of 120,000 than in a metropolis like Greater Tokyo, with its 38 million people.

The efforts in Aizuwakamatsu have attracted attention from the Japanese government as a demonstration model for regional revitalisation. The city accommodates university and private-sector sponsored field tests and experiments using a range of technologies. Many large companies, including Accenture with its 250-person innovation center, have put down roots in Aizuwakamatsu. Globally and locally recognised names such as Symantec, Mitsubishi Corporation, and NEC have all opened offices in the city as well.

Given Japan’s traditional industrial model, where corporate jobs are located only in the biggest cities, this change has great potential for the country’s long-term economic health.

 

Cities both large and small throughout Japan thankfully do not need a crisis to tap the potential of smart-city innovations.

A Model for the Nation

A smart city thrives only when its people are involved. Aizuwakamatsu has one of the highest active citizen participation rates (20% opt-in base), and that figure continues to rise. Eight years after the regional devastation of 2011, it is a leading smart city.

Now the fruits of smart-technology experiments are expanding across the nation. Cities both large and small throughout Japan thankfully do not need a crisis to tap the potential of smart-city innovations. They can draw on the lessons that continue to emerge from Aizuwakamatsu and the region to become distinctive sources of sanpo-yoshi, finding new ways to help companies, individuals, and Japanese society.

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About the Authors

Shojiro Nakamura leads the Accenture Innovation Center in Fukushima, Japan.

 

Hiroyuki Okabe is a manager with Accenture Research in Japan.

 

 

The authors thank David Kimble, Regina Maruca, and Kazumi Yamada for their contributions to this article.

Business Broadband – What Makes It Special?

Few businesses can function without a broadband connection. Not only do you need it to have any sort of presence in the open market, but you also need it for day to day running. If you’re a small business there are cost-effective alternatives but for larger enterprises you will need a different kind of broadband service.  

There are two major types of broadband – home broadband and business broadband. Home broadband is designed for use at home or even in small workplaces with a limited demand. But for big enterprises and large firms with a number of employees, home broadband is not viable. You must use a specialist business broadband for larger workplaces and setups. Thankfully, you can find sites to compare broadband ISP’s online and find a package that suits you the most.

 

Advantages of Business Broadband Over Home Broadband

Business broadband offers several advantages over home broadband. These include,

Unlimited Downloads
Business broadband gives you the freedom to download and upload unlimited data. The allocated allowance for unlimited data is much higher in business broadband than home broadband.

Connection Speed
Business broadband is much faster than home broadband. Not only is there a better connection speed but they also get preference over home broadband during peak hours.

Lower Contention Ratio
Business broadband also has a lower contention ratio. This means their server is shared by fewer internet users and sometimes allocated a separate server altogether. Less traffic on the server means a faster speed with less fluctuations.

Efficiency
When it comes to online streaming business broadband is more efficient than home broadband. It is capable of running software to complete automatic online tasks such as processing transactions and stock tracking.

Static IP Address
Most business broadband provides static IP addresses that help organizations host their own servers for remote connections.

Support
Business broadband also provides its users with the required specialist technical support which is not the same as required for home broadband.

Custom Services
Apart from the above-mentioned benefits, some business broadband providers also provide a good customer service, if required.

 

Impact of Business Broadband

Business broadband is no doubt an expensive service but the cost can be ignored when compared with the overall positive impact it has on a business.

• Business broadband helps bridge the gap between customers and suppliers with its fast service that is available all the time.
• Efficient and fast connections help the business to be more responsive to emails and online orders.
• Business broadband also ensures uninterrupted live streaming so it’s ideal for video conferencing adding to creating a positive impression on customers and clients.
• It also helps with improving communication between employers and employees. 

It almost seems like a no brainer to have a reliable way to use the internet to benefit your business and once you have a broadband connection it can open all sorts of new avenues. Even a one-man operation can use social media with free instant messaging to stay in touch with customers and attract more. For bigger companies, the benefits of having business broadband are endless, but it is also important for them to compare broadband ISP’s online before taking the plunge.

 

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