Corporate Governance and

Digital Transformation

Klaus Schweinsberg
January 9, 2019
University of Konstanz
Corporate Governance

« corporate governance can help to ensure that the

shareholders’ pockets are close to managers’ hearts.“

(Brealey/Myers/Allen, 2007, p. 23)

 Digital Transformation
Palantir to offer cancer analytics under JV
deal with Germany's Merck
Ludwig Burger, Patricia Weiss

3 Min Read

((This NOV 19 story corrects to show Merck is Palantir’s exclusive partner within the JV, not
for all of Palantir’s healthcare activities, paragraph 11))

FILE PHOTO: Merck CEO Stefan Oschmann delivers a speech during the celebrations of the
350th anniversary of German pharmaceuticals company Merck at the Merck headquarters in
Darmstadt, Germany, May 3 ,2018. REUTERS/Kai Pfaffenbach
Digital Transformation

(Floridi, 2019, p. 12 (https://de.slideshare.net/sogeti_nl/luciano-floridi-76925492; last access 04 Jan 2019)

From VUCA 1.0 to VUCA 4.0
virtual unbound cybered artificial
volatile
uncertain
complex
ambiguous

(own research; for origins of acronym VUCA see Shambach, 2004)

Corporate Governance

« corporate governance can help to ensure that the

shareholders’ pockets are close to managers’ hearts.“

(Brealey/Myers/Allen, 2007, p. 23)

Corporate Governance 1.0 - assumptions
Alfred Chandler Milton Friedman Adam Smith Jensen/Meckling Berle/Means
Theory: … all Theory: … all Theory: … it is the Theory: … Theory: … the
companies are or companies are invisible hand of managers’ property of the
finally end up to striving to the market which interests have to many is controlled
be stock-listed generate disciplines be aligned with via the influence
(free floated) maximum returns companies … shareholders’ of a few … (Board
corporations … … interests via of Directors resp.
(financial) Supervisory Board
incentive systems

Reality: … variety Reality: … variety Reality: … variety Reality: … variety Reality: … variety
of ownership of different of invisible hands of checks and of (influential)
structures bottom lines … … balances stakeholders …
Variety of ownership structures
• stock-listed corporations (free float)
• stock-listed corporations (dominant owner/anchor)
• family-dominated companies
• owner-dominated companies
• trusts/foundations (« Stiftungsunternehmen »)
• cooperatives (« Genossenschaften »)
• state-owned companies
• state-dominated companies
• Private-Equity
• Social Enterprises
• NPO
• Etc.
Variety of bottom lines
• Maximum return
• Stable return
• Generate (maximum) value
• Generate (maximum) market cap
• Generate (maximum) reach/user base/network
• Triple Bottom Line
• Social Value
• Non for Profit
• Etc.
Variety of checks and balances/stakeholders
• Owners
• Employees (workers’council, unions)
• Market (customers/competitors/business partners)
• Financial (stock exchange, banks, rating agencies, financial analysts)
• Media
• Politics
• Bureaucracy (regulation)
• Region (neighbours, local council, citizens’ action committees)
• NGO
Corporate Governance 4.0 - Accountability
WHO FOR WHAT

HOW TO WHOM

(March/Olsen, 1995, p. 143)

Corporate Governance 4.0 – four cases
1. Digital transformation and Property Rights: who « owns »
the digital future?
2. Digital Transformation and Agency Costs: monitoring of
managers and employees – the cheaper the more?
3. Digital Transformation and Stakeholder involvement: new
frontlines or new alliances?
4. Digital Transformation and Corporate Ethics: who is
accountable for what to whom?
Digital transformation and Property Rights:
who « owns » the digital future?
Paul B. Kallen, CEO
Hubert Burda Media:
« Incentive structure
digital investments:
- short term risk of
failure
- very long time
chance of success »

Source: Presentation of Burda CEO given in Schaan April 16, 2015

Digital Transformation and Agency Costs: monitoring
of managers and employees – the cheaper the more?

• ☰ Get Meaningful and Actionable

Insights That Drive Transparency,
Efficiency and Objective Decision Making

• Sapience collects digital signals from various systems in an

organization and populates dashboards that help business
leaders get visibility into productivity and work patterns of
their team. Every employee at every level in your organization
can benefit from data, reports and insights Sapience provides.
Discover insights you never knew existed.
https://www.sapience.net
Digital Transformation and Stakeholder
involvement: new frontlines or new alliances?
Digital Transformation and Corporate Ethics:
Who is accountable for what to whom?
Corporate Governance 4.0 and BoD
« In theory, the legitimacy and authority of corporate power is also
based on accountability. Corporate governance also has its checks and
balances (including government). To maintain legitimacy and credibility,
corporate management needs to be effectively accountable to some
independent, competent, and motivated representative. That is what
the board of directors is designed to be. »

(Monks/Minow, 2011, p. 16)

New Role of Board of Directors
Thank you!
References
• Berle, Adolf A./Means, Gardiner C., The Modern Corporation and Private Property, xxx, 1932.
• Brealey, Richard A./Myers, Stewart C./Allen, Franklin, Principles of Corporate Finance, Ninth edition, McGraw-Hill, 2007.
• Chandler, Alfred D.The Visible Hand: The Managerial Revolution in American Business, Harvard University Press, 1977.
• Floridi, Luciano, The Fourth Revolution - How the infosphere is reshaping human reality, Oxford University Press, 2014.
• Friedman, Milton, The Social Responsibility of Business is to Increase its Profits, in: New York Times Magazine, 17.09.1970,
p. 17.
• Jensen, Michael C./Meckling, William H., Theory of the firm: Managerial Behaviour, Agency Costs and Ownership Structure,
in: Journal of Financial Economics, 3/1976, p. 305-360.
• Shambach, Stephen A. (Ed.), Strategic Leadership Primer, Second Edition, US Army War College Carlisle, 2005.
• March, James G./Olsen, Johan P., Democratic governance, Free Press, 1995.
• Monks, Robert A.G./Minow, Nell, Corporate Governance, Fifth Edition, John Wiley & Sons, 2011.
• Schweinsberg, Klaus, Werte, Führung und digitale Kommunikation, in: Vieweg, Stefan/Müller-Wiegand, Matthias/Meisner,
Harald (Eds.), Nachhaltige Unternehmensführung in der Digitalisierung, Erich Schmidt Verlag, 2018, p. 85-108.
• Smith, Adam, Wealth of Nations, Classic Reprint, 1776
Back up
Levels of Corporate Decision Making
Level what
Owners’ Strategy Corporate Values, equity, business
model
Corporate Strategy Ressource allocation, vertical
integration, diversification
Competitive Strategy Product, Marketing, Distribution
Functional Strategy R&D, HR, Purchase,
who
Owners’ assembly, BoD
BoD, Group Management
Group Division, Business Unit
Business Unit