Safety fast: governance and innovation

Since the turn of the century, the prevailing mantra of successful businesses has been that disruption trumps caution. Facebook — now Meta — once worked to the now discredited internal motto: “Move fast and break things”.

But, at times, innovation and genius have seemed diametrically opposed to good governance. Sheryl Sandberg was originally brought in to Facebook with the intention of curbing that mentality. Elon Musk, feted by some as a visionary, has faced criticism over his handling of social media site X. Sam Altman’s departure from — and return to — OpenAI left a cloud hanging over one of the world’s most hyped tech companies.

That’s a challenge for business schools, where technology is one of the most essential areas of focus. New developments such as AI have the potential to transform how we work and the kinds of industries in which we do so. But, if future business leaders are to avoid the sort of high-profile scandals that have become increasingly common, an important lesson they should learn is that good governance must coexist alongside innovation.

Global MBA Ranking 2024

Read the ranking and report, plus how we compiled our league table. Spotlight on the MBA webinar, February 21: businesseducation.live.ft.com.

Alex Barkley, co-founder and managing partner at venture capital and private equity investor Lancero Capital, says the challenge is that incentives and governance are often misaligned in emerging technologies.

“Businesses are pressured to grow at all costs [often by investors or the market, and] this rapid growth is often at odds with a governance function,” he explains.

“I think governance is often an afterthought — who hires a governance team while you’re ‘blitzscaling’?”

Barkley also admits that governance is not the “sexiest” topic, not least when compared with the world-changing promise of innovation.

However, at its worst, poor governance can lead to serious ethical breaches, such as fraud. Cryptocurrency exchange FTX was once seen as the breakthrough voice of the crypto industry. A lack of effective controls and governance allowed FTX to send to send customers’ funds to its sister company Alameda Research. Investors were impressed by founder Sam Bankman-Fried’s self-styling as an ascetic philosopher, but there was less focus on investigating how the business was run. Bankman-Fried was convicted of fraud and money laundering in November.

Outright cases of theft and fraud are not the only issues. Barkley points to the example of OpenAI, the $86bn AI start-up which has received investment from the likes of Microsoft. OpenAI’s highly public chief executive Sam Altman was ousted suddenly and unceremoniously in November, after losing the board’s confidence — before a staff revolt led to his return.

Guðmundur Kristjánsson, founder and chief executive of Icelandic anti-financial crime artificial intelligence start-up Lucinity, says governance is particularly important in a field such as AI.

“I am a proponent [of the technology] — I believe that AI maybe in the future will have an effect like the calculator,” he says. “But there needs to be safety — in the wrong hands it can be devastating.”

Lucinity has adopted an ethical AI policy, which clearly stipulates where the technology is used and, perhaps even more crucially, where it is not. But Kristjánsson juxtaposes the importance of governance with the importance of not preventing new discoveries.

“I am fully for it while it’s not stopping innovation — I am of the opinion that we should nurture [emerging technologies] and then put speed bumps when we see a problem, instead of putting speed bumps now,” he says.

Kristjánsson also emphasises that, for business students, the issue of governance goes beyond getting the right people involved. Other factors, such as assessing the quality of the data used to create innovative technologies, is also vital. “It’s about reminding the programmers to include variety in your training set — you need to operate with good quality,” he says.

Barkley makes a case for focusing on governance early. One of the important lessons for business school students, he adds, is that companies often begin to look at embedding good governance practices into their organisation too late for it to make a difference.

“I would say that ensuring that people are thinking about good governance at the very start of their journeys is key,” he says. “Bring investors in who understand what proper governance looks like. Establishing experienced boards as early as possible is also key.”

He sounds a more sanguine note on the future of the sector — and a reminder for MBA students that entering a new and exciting industry naturally comes with downsides.

“I think, in a lot of the recent news stories, it’s a case of too big, too fast,” he says. “HSBC had 150 years of trial and error to build its governance function. OpenAI have only had a few years. Perhaps we should be a little kinder to these businesses.”