New legislation required for future online transactions?

In the last weeks of April, the largest cyber attack ever took place when criminals successfully hacked into Sony's two online gaming networks, PSN and Sony Online Entertainment. Financial details of millions of online customers worldwide were extracted during the cyber attack.

As an immediate outcome of this disaster, Sony faced several lawsuits. Also on a broader level, this disaster has provoked drastic consequences. In the US, Republican Mary Bono Mack, who heads the Commerce Committee's Consumer Protection Panel, said she would introduce a new bill. According to her and others, the existing legislation falls short in obligating companies to secure sensitive information and to timely inform clients about such security breaches. Because more and more people become active online purchasers, large online companies such as Amazon, Sony and Apple contain vital financial information of an increasing amount of people, to such an extent that legislation should become updated to make companies safeguard this valuable information. Not only is an increased security needed, but also concerns about privacy and the potential trade in personal data should be considered.

Does this security breach mean that online consumers should doubt the security of their online transactions on all e-platforms? Are iPhone users OK with the fact that Apple can track their users? This matter can also be applied for companies; should companies which purchase online services such as cloud computing also be worried?

Conflicts of interest and how to deal with them

There is seldom a case when conflicts of interest do not occur. These are situations in which an individual is involved in multiple interests, mostly a personal interest which does not align with his professional responsibilities.  Such a situation corrupts the actor’s decision making and arises in many fields such as politics and business. A high profile example of the last century is the Arthur Andersen – Enron story.  Or, a recent one is the accusation of Rajaratnam of insider trading, who made an illicit 63.8 million US dollars over the last years by trading on illegal insider tips.

The next example tells you that conflicts of interest arise in diverse contexts. Surgeons, having years of experience in their proper practice, are regarded as the best innovators in medical devices. And so they often engage in entrepreneurial activities and commercialise their own developed devices. Their reward: royalties on the amount of devices sold. Consequently this remuneration model encourages surgeons to sell as many of these devices as possible. Their personal gain of selling devices (royalties) conflicts with their interest as a surgeon, which exists in offering the best possible health solutions.

Conflicts of interest can be complex legal situations and, if handled incorrectly, they can have negative outcomes for the people involved. Companies have gained experience in coping with conflicts of interests and the following highlights practices to avoid or deal with conflicts of interest.

Avoidance of decision making

The best way to deal with a conflict of interest is removing them immediately once they are discovered. A recently elected politician might sell all his corporate stocks and resign from any corporate boards in order to remain neutral in his political judgement. This, however, is often easier said than done. A better way is to abstain oneself from making any decisions when one finds oneself in a situation of conflict of interest. A situation in which a manager does not participate in the decision-making of which legal advisory firm to hire because a family member of his is a senior member of a potential legal contractor, can be considered as way of avoiding such a situation of conflict.

Code of Ethics

Every company should have a Code of Ethics in which, among other sections, some important guidelines and imperatives of how a situation of conflict of interests should be addressed. This section should include topics such as the hiring and supervising of family members and in which way corporate gifts should be offered or accepted. Corporate gifts should be considered as a sign of commitment between two cooperating companies, not as a bribe. Therefore companies should offer these gifts publicly and with a broad audience.

Legal advice

When in doubt of how to act, companies can always seek legal advice, demonstrating transparency.

Corporate culture

The culture present in the company also plays an important role in how employees or board members act in a situation of conflict of interest. An open, transparant culture should be established which promotes individual responsibility and which is intolerant against conflicts of interest.

Over the course of the years companies have refined their social policies into a robust Corporate Social Responsibility, covering not only conflicts of interest but also environmental issues, health programs, community support etc. Even though some industries are more prone to conflicts of interest and companies will have their own emphasis on how to cope with them, the basic guidelines are in all present. “Prevention is better than Cure” is such one next to keeping things transparent and acting along one’s best intentions.

Towards a more comprehensive metric

Until now countries’ success has been measured by their GDP, Gross Domestic Product. In my opinion, purely economic growth can’t express completely the total well-being of a country’s inhabitants. Aren’t there other metrics to determine national wellbeing?

This social study area has been given renewed attention since the end of 2009 when Sarkozy commissioned Nobel Prize winners Joseph Stiglitz and Armatya Sen and many others to think about how to construct such a metric and to determine its possible hurdles. Out of such research, French policy makers should be able to deduct the determinants of people’s happiness on which consequently social policy can be build. Also, this metric should be taken into account when analyzing a country’s GDP and will increase therefore the importance of national wellbeing and sustainability in a country.

In my opinion, happiness increases when the unemployment rate decreases. When one has a job, one feels part of a larger group and has a reason to get up in the morning. Next to this, access to health and a good work – life balance seem to me other vital determinants of people’s happiness. Next to this I think with the installation of a happiness index, social policy will gain in importance at the expense of economic policy which has by far the upper hand in politics nowadays.

Let’s also think about what this phenomenon means for one’s personal life. If wellbeing and sustainability are more often addressed in future politics, we might also on a personal level value the non-economic parts of life stronger. This was an important topic of many parties ‘agenda during the General Elections of last week.

On international relations

Since the beginning of the New Year, we have read numerous articles about tensions between America and China. These issues tend to focus on the US accusing China of violating human rights, disagreements regarding currency politics, accusations of western companies being disadvantaged by ever changing economic policies and the ‘forced’ technology transfer in joint ventures with local companies in China. China, on the other hand, claims that international US economic policies are too protectionist.  These issues are to be viewed in an attempt of US to safeguard its position as largest economy and largest political power, while China wants to manifest itself as a major global economic power.

These tensions become more and more visible because China nowadays competes on more levels of the value chain with the western world. While having historic roots in low-cost manufacturing, Chinese companies are moving up in the value chain into more value added positions and are increasing their global presence, as witnessed by the acquisition of BorsodChem by Wanhua Industrial Group in Hungary.  And so many Chinese manufacturers are in direct competition with western companies. Next to this we are also seeing disagreements concerning access to natural resources as both countries attempt to safeguard their national interests.

This economic war, as it is lately often referred to, is detrimental for the global economy. The world would benefit from cooperation between the two countries pursuing mutual benefits and maintaining fair access to natural resources. Cooperation will not only balance the world economy, but it will also help enabling a more effective tackling of global issues such as climate change, terrorism and poverty.

The only way to accomplish such cooperation is in maintaining open international discussions. A ‘China vs. the world’ scenario can be avoided if China faces up to its responsibilities as an emerging global player and if the rest of the world learns how to adjust to China’s growing impact. 

Japan and the energy question

The earthquake in Japan and its triggered tsunami caused many casualties and a nuclear incident at the Fukushima plant. As the world deeply mourns for this tragedy, the debate is back on whether nuclear energy should be included in the energy mix of the future. Because there are both pros and cons about nuclear technology, this is a difficult to answer question.

This statement actually goes for all electricity generation technologies; there is no champion which is better than the others. Fossil fuel electricity generation causes climate change, nuclear power generation produces dangerous nuclear waste and finally electricity generation from renewable energy sources makes up for only a slight percentage of today’s energy mix. Renewables still need a lot of investment to gain economies of scale.

The incident in Japan makes us think about how the future of energy will look like. While Hidehiko Hishiyama’s, a director general at the trade ministry, states that renewable energy alone isn’t sufficient and that nuclear power is essential, one needs to take into account another important trend in the energy and utilities sector. This is the development of smart grids and smart meters. Smart meters make measurement possible. And that which can be measured, can be managed. Consequently, companies which have implemented an energy management system can save money and resources by reducing their carbon footprint.

If energy efficiency and smart grids will be part of everyday use in the future, (intermittent) renewable energy sources are a better fit to the energy demands than (bulky) nuclear power. However, if safety can be guaranteed with regard to nuclear power generation, also this can be considered as an interesting alternative. 

Megatrends already at play: Evidence from the Middle East

During the last couple of months of last year- 2010 - we evaluated the key megatrends that will have a significant impact on future societies and businesses. What we are seeing at the moment across the Middle East appears to be a reflection of many of these ‘trends’.

Over the past month and a half, we have seen revolts in Egypt, Tunisia and Libya; young students and professionals demonstrating, in some cases with arms, against what they perceive as an oppressive regime. The increased connectivity of the region coupled with an educated youth faced with unemployment rates of close to 30% has been driving force behind the demonstrations and echoes the ‘trends’ we discussed in our previous blogs.

The unrest in the Middle East has also clearly impacted the price of oil and it raises questions once again about our dependence on fossil fuels and how we ought to continue our focus to find more sustainable energies if we don’t want to be held to ransom by a volatile region.

It is fair to say that the ‘megatrends’ of the next 5 to ten years are evidently a reality now and the events in the Middle East are good example of them at play.

Balancing the retailer - manufacturer dynamic

As global retail chains increase their presence in the Asian markets, analysts question whether the battle for power between brand manufacturers and large retailers will also be fought here.

If pressure from retailers and their private labels continues on brand manufacturers, what are potential moves for manufacturers to alter a possible gloomy outlook of retailer dominance?

Create your own distribution network

If the mass channel becomes difficult to compete in, leverage your dependence away from that channel. Go in-house and target your customers directly. Using the franchise model is a relatively easy way for a quick expansion. McDonald’s uses this method to quickly expand its presence in new markets.

Engage in e-retail

Explore this as a serious option. Online retail has grown at a tremendous rate and there are no signs that this trend will change over the next years. Amazon, for example, has known an enormous success and has recently set up plans to start a free weekly home delivery service.

Provide your customers with a shopping experience

Don’t forget that shoppers see shopping as an important leisure activity. Focus on providing your clients with the best attraction in your category section in the supermarket or in your shop in the shopping complex. Apple experiences a lot of success in this way: shoppers can test and try Apple products, attend workshops and ask for advice from Apple ‘Geniuses’ about all kinds of products. Make your products stand out from the rest by experimenting with creative packaging, creating your own shelves, sample tastings and introducing innovative products. In this way, you essentially force the retailer to stock your products.

Be innovative

Many large brand manufacturers have spent decades creating an emotional brand value. Nowadays, as shoppers are more than ever aware of the huge amount of options they have, focus should shift towards creating innovative products and marketing them accordingly. Knowing how your shoppers shop and offering them a quality product will generate repeated sales. This focus readjustment to products can potentially prove to be effective against private label competition.

Cooperate with retailers

Work together and search for win-win situations.  Retailers and manufacturers are in it together to sell products. Retailers need brands in their shelves to create their own brand image. Look for symmetries between your brand and the retailers’ brand and establish safe long-term contracts to secure that collaboration.

Take these 5 guidelines into consideration and question yourself what they practically mean for your brand. We need to remember that the emergence of mass retailers is an effective channel for brand exposure and reaching your end customer, especially in the Asian markets where infrastructure is still developing.