Author: Dr. Oldrich Bubak
Waiting in a long like to get a meal lead one San Francisco entrepreneur to what he believed to be a good local business idea. He created a software application which placed fake reservations at a variety of upscale San Francisco restaurants only to sell them to customers who wanted to eat there at the last minute. While an attempt was made to cancel the unsold reservations 4 hours prior, there is no doubt this venture was detrimental to the business of most of these restaurants. "Is this even legal? Is it ethical? ... To be honest, I haven't spent a lot of time thinking through these questions. I built this site as an experiment in consumer demand for a particular product," added the developer on his blog [1], perhaps reflecting the attitude of creators of a number of similar products including applications developed to auction off or resell street parking spots, a valuable commodity in a busy city [2].
In a more consequential example, consider the now infamous Theranos, a company that promised to transform the blood-testing industry and with it health-care as we know it. The company claimed to have developed a method of obtaining dozens of laboratory results from a single drop of blood. Needles, syringes, and test tubes were to be succeeded with pin-pricks and Nanotainers. The value proposition was to make blood testing, now allegedly possible at a fraction of the cost of the competitors, accessible and regular facilitating personalized medicine as well as early treatment and prevention. The company's appealing "changing the world" message drowned out voices challenging the viability and the implications of its technology. Theranos and its founder have since been found to have mislead its investors—going as far as using competitors' equipments to run their tests—and its employees [5]. While itself an important case study on how not to run a startup or not to invest in one, it raises a set of deeper issues. If this technology and offering could be implemented, would it be of overall benefit to its customers, or good for society in general? Is access to more diagnostics tied to more frequent medical treatments good for personal health? Is the shift of control of health data from physicians to patients appropriate? Evidence shows that detecting false positives (which lead to invasive follow-ups), observed genetic changes (complicated by environmental-gene interactions), or incidental findings can worsen rather than enhance health outcomes [4]. In fact, rather than costs, it is these reasons that drove the acceptance of the as-needed model of blood testing over the past several decades. In addition, given the privacy breaches of the recent years, there are deep concerns about individual diagnostic data (even if anonymized) being used for other purposes—namely as the lines between research and commercial applications can be blurred easily. The thinning privacy policies have proven of little use to the users as well [5].
Another—to many the most familiar—case is Facebook, a company whose questionable founding and consolidation was foretelling of its future. What appears a bland technology platform for connecting and sharing user media, is behind the scenes a lucrative and powerful information empire with the ability to manipulate content while collecting detailed data on users, their connections, and their behavior. The motivation is to maximize shareholder value, pushing the boundaries of existing standards and regulations. This has lead to recurrent breaches and public relations disasters. For example, in 2012 Facebook allowed a massive experiment during which its users were unknowingly exposed to manipulated news feeds containing various mixes of positive or negative content. The study found that social networks are capable of changing its users' emotions on a large scale [6], pointing to an enormous responsibility of Facebook and other such firms in presenting information. Unfortunately, there is evidence that rather than embracing this responsibility, the provider abused its power, for example in tracking and targeting vulnerable youth [7]. Then, more recently, there is the Cambridge Analytica scandal involving a firm which was able to retrieve data on nearly 90 million Facebook clients [9] (a fact which Facebook did not disclose to its users at the time) and used it to help influence election outcomes. This is especially important as Facebook is now a source of news of almost half of the adults in the US [7].
Not to forget, there are much more consequential applications of Facebook in politics in vulnerable regions outside of Europe or North America. For instance, Facebook, a major source of news for people of Myanmar, has had a role in facilitating the persecution of the local minority population [9]. Fake news and misinformation disseminated through WhatsApp, a Facebook subsidiary, destabilized parts of India, forcing the company to take out ads in the local newspaper to educate the public on how to treat online information [9]. Less apparently, these breaches are a reflection of a problematic corporate culture [8], which begins with executive management and is cultivated throughout. It is likely there will be more disclosures of the firm's problematic practices, given the increasingly public dissatisfaction of its employees [10].
There are numerous other examples of breaches of social contract or even blatant violation of the law, including the Volkswagen emissions scandal, Snapchat's ambivalence to the privacy of nearly 5 million of its users [11], or Uber's efforts to sabotage its rivals among its other alarming threats [11]. Note there is a common theme in the examples above: companies make decisions that might be legal, but deficient in ethics and/or ignorant of their negative social impacts (both inside or outside of their contexts). The technology is moving much faster than the ability of policymakers and regulators to protect individual freedoms and public interest in the age of the network and the cloud. At the same time, as apparent from the above, we do not fully understand the implications of runaway innovation, including in biotechnology, diagnostics, data mining, or misinformation (yes, this means innovations in the manipulation of public opinion); due to the lack of precedent, it is not clear if this situation is sustainable for the consumers or the business. What do we do?
Intellectual Virtues and Real Contributions
The "untrapped mind" is open enough to see many possibilities, humble enough to learn from anyone and anything, forbearing enough to forgive all, perceptive enough to see things as they really are, and reasonable enough to judge their true value.
—Konosuke Matsushita, Japanese industrialist
Progress seems no longer a question of new science and technology, as apparent from the earlier discussion. It requires an expansion of thinking about management, leadership, innovation, and the interconnected and interdependent world around us. More specifically, it requires adding to our toolkit an intellectual virtue that was first discussed by Aristotle, but which has been lost in time: phronesis. Unlike other philosophers, Aristotle recognized the laws and general truths as equally important to human endeavor as were context and circumstance. This was reflected in his classification of intellectual virtues: episteme, techne, and phronesis [12]. Episteme is what we understand as scientific knowledge, the search of context-independent truths using the traditional scientific methods. Techne is technical knowledge, a skill applied towards a conscious goal. Phronesis is prudence, a reflection and deliberation on a course of action in a particular context. In other words, episteme can be thought of as know-what, techne as the familiar know-how, and phronesis as know-what-should-be.
In general, societies have benefited greatly from scientific and technological advancements. But it is also clear science has not been able to answer all questions, especially those dealing with social aspects of the changes it has been driving. This has been particularly evident in social sciences, and, from the examples above, business. Cognizant of these issues, Bent Flyvbjerg, in his seminal Making Social Science Matter, makes the case for bringing analysis of values—phronesis—to the study of the social matters. This, according to the author, will require asking four key questions [12]: Where are we going? Is this path desirable? What action should be taken? Who wins and who loses? And how, or through which power mechanisms? "All social phenomena—including business—are context dependent, and analyzing them is meaningless unless you consider people’s goals, values, and interests along with the power relationships among them," explain Nonaka and Takeuchi [13]. In business, this means that "CEOs need to ask if decisions are good for society as well as for their companies...Companies will then start thinking of themselves as social entities charged with a mission to create lasting benefits for society. Unless companies create social as well as economic value, they will not survive in the long run," add Nonaka and Takeuchi [13]. But asking such questions and deliberating on answers is not sufficient as these must come with appropriate action. And because any decisions require balancing a set of competing options in unique contexts, experience and understanding is essential. This is why phronetic leadership, an area of study and practice, becomes of great importance here.
It is apparent that phronetic leadership cannot be described in a sentence. While some authors describe phronetic leadership through a set of qualities to be developed and exercised [13], we conceptualize it differently. Phronetic leadership brings together the study and development of leadership qualities, the appreciation of social values (and their deliberation) inside and outside of the enterprise, as well as the recognition of the inherent properties of the social world, an evolving, interconnected system.
There has been much said of business leaders, their capacity to formulate a vision, communicate it, obtain buy-in, and execute. Yet their successes—mostly gauged by some objective measures such as return on investment, market capitalization, or visibility of their products—overshadow other, even more important elements, such as the social value of the goods or services. Are these beneficial to the consumers? For whom, where, and in what time frame are the products of value?
This has not only moral but also practical implications to the business—as the society's will, expressed through political or policy action, may eventually catch up and demand correctives. This is visible in some EU regulations on privacy and data security, which differ greatly from other jurisdictions. Even more vivid is the example of 23andMe, a company which sold personal genetic testing kits, in its view a highly innovative product of great benefit to its clients. The publicized benefits included helping to lower the costs of genetic testing, facilitating genetic research through big data, as well as making advancements toward genomic medicine [14]. But there were also negative aspects, some of which eventually resulted in the US government's banning of the product. Is it good for people to have access to their hard to understand genetic data? What are the health benefits of this knowledge? Are the risks of the customer's anxiety and possible depression acceptable? Alarmingly, to lower the cost of the product, the company planned on selling the clients' data to third parties. As discussed above, even if initially anonymized, this could have large implications to people's privacy. A phronetic leader would consider the above before executing such a business plan. Likewise investors, which are on the other side of leadership, should carry out the same analyses.
The third component of phronetic leadership is the understanding of the social world as very different from the natural. It is a system, interconnected, adaptive, replete with feedbacks and uncertainties, where the standard conceptions of causality do not easily apply. Consider, for example, what may be an appropriate or valuable solution today, may have very negative implications under evolving conditions. What may begin as a platform for sharing information, may quickly become a significant content producer through the arising necessity to filter, modify, or censor content. Yet continuing to operate as a de jure platform is deeply problematic—both morally and commercially. As well, systems exhibit feedback. What may appear as a good solution initially can become socially detrimental, if left unattended. Causes and effects are not related in time, solutions may create their own problems, or small changes may produce large results. These are among some of the lessons taught by Senge [15], a scholar of learning organizations.
Phronetic leadership is not new. It has been applied partially or under different labels both in the east (as demonstrated by stories and success of Japanese companies [13], for example) and the west. Yet, as apparent, there is a need to bring phronetics formally and broadly into the social enterprise to ensure sustainable progress. This is also the mission of SPML and its program, which focuses on the three interrelated aspects of phronetic leadership and its implications to ventures of any size.
References
[1] http://brianmayer.com/tag/reservationhop/
[2] https://techcrunch.com/2014/07/03/go-disrupt-yourself/
[3] https://www.vanityfair.com/news/2016/09/elizabeth-holmes-theranos-exclusive
[4] https://www.degruyter.com/view/j/cclm.2015.53.issue-7/cclm-2015-0356/cclm-2015-0356.xml
[6] https://www.theguardian.com/technology/2014/jun/29/facebook-users-emotions-news-feeds; http://www.pnas.org/content/111/24/8788.full
[7] https://www.wired.com/2017/05/welcome-next-phase-facebook-backlash
[9] https://www.nytimes.com/2017/10/29/business/facebook-misinformation-abroad.html
[10] http://www.businessinsider.com/facebook-employees-quitting-whatsapp-instagram-cambridge-analytica-report-2018-4
[11] https://www.nytimes.com/2014/11/27/style/uber-facebook-and-others-bedeviled-by-moral-issues.html?_r=0
[12] Flyvbjerg, Bent. 2001. Making social science matter: Why social inquiry fails and how it can succeed again. Cambridge University Press.
[13] Nonaka, Ikujiro and Hirotaka Takeuchi . 2011. " The Big Idea: The Wise Leader." Harvard Business Review. https://hbr.org/2011/05/the-big-idea-the-wise-leader
[14] http://berkeleyjournal.org/2015/01/morality-and-the-idea-of-progress-in-silicon-valley/
[15] Senge, Peter. 1990. The fifth discipline: The art and science of the learning organization. New York: Currency Doubleday.
