Trust & Transparency; The Future of Business
Updated: Apr 6
In recent decades, technological innovation has been at the heart of business transformation. As wave after wave of disruption constantly reshapes the corporate environment, there are inevitably winners and losers. Blockbuster has become a classic case-study: they passed up the chance to buy Netflix for just $50 million in 2000. Blockbuster has since gone defunct, while Netflix’s market cap is over $130 billion. The retrospectively poor business decision notwithstanding, this is a quintessential example of what economist Joseph Schumpeter called “creative destruction”: the economy is driven by new technologies, processes, and relations supplanting the old. 3 To stand the test of time, no business can rely on past success — it must evolve with the world around it.
A brave new business world
While technology is a primary driver of creative destruction, it occurs in parallel with social forces as a constant feedback loop. We are currently witnessing the emergence of a new “corporate social contract”. As the internet has expanded into every facet of life, businesses have gained an unprecedented connection to their consumers. From social media interaction to Big Data, their insight and influence is omnipresent. Increasingly, though, this is not a one-way street. Consumers expect that business not only meet their product or service preferences but do so in a way that aligns with their core values. The ethical practices of a corporation are becoming central to its social license to operate.
A similar trend is occurring in investment. Millennials invest in companies or portfolios with explicit social or environmental intent (known as impact investing) at twice the rate of previous generations. Socially responsible investments — that take Environmental, Social and Governance risks into consideration — already represent a quarter of the $100 trillion global assets under management. Impact investment is young, and still relatively small, at around $228 billion. However, the industry grew five-fold between 2013 and 2017. This momentum will increase as an immense generational wealth transfer occurs in the coming years and decades.
Advances in — and relationship to — technology underly both trends. Firstly, the same technology that gives businesses a window into their consumers’ lives facilitates public scrutiny of a company or industry. Secondly, this technology is second nature to an ever-growing number of people. The cumulative impact is that access to information is an expectation. To succeed in this environment — where consumers and investors expect more than a good product/service or ROI — trust must be cultivated. And because this trust is predicated on information, it demands transparency.
Before exploring how to cultivate trust and transparency, let’s tackle how, and why, this is relevant to mining. The industry is not consumer-facing, and as its raw materials form the building blocks of all modern life, it may seem sheltered from the social forces of creative destruction. Such sentiment may explain why mining’s transformation has lagged behind other industries. In the past, this quiet ubiquity may have worked in its favour. Today, opacity is fast becoming the industry’s Achilles heel.
Rather than seen as producers of social and economic capital, mining’s public image is marred by a barrage of social and environmental horror stories. Colombia has long been infamous for its drug cartels. Yet today, organised crime makes more money from illegal gold than it does cocaine. Over 80% of Colombia’s exported gold is illicit. Without oversite or regulation, illegal mining locations witness devasting deforestation, poisoned rivers, child labour, and sex trafficking. Unlike cocaine, where every step of the process is illegal because the product is, gold is not. The opacity of the supply chain is thus exploitable: corruption and obscuring processes at various points funnel much of the gold into legitimate Western markets. This is far from an isolated case: in Venezuela, illegal gold accounts for 90% of production, and a similar pattern occurs in many parts of Africa.
Both upstream and downstream — from miners to technology producers members of the supply chain are subject to regulation, via compliance with organisations like the OECD and LMBA. These will come under heightening scrutiny from a socially conscious and tech-savvy public. In a globally interconnected world, in any industry, pressure on consumer-facing companies is increasingly transferred across the entire supply chain. Transparency may thus become a proxy for industrial and retail behemoths’ reputations. In turn, the mining industry will have to meet these expectations or become a liability.
Market sentiment seems to echo these concerns. Despite high revenues and profits, and record dividends to shareholders, market capitalisation is flat. Investors lack confidence that the industry’s performance is sustainable. While there are various contributing factors that need to be addressed, improving transparency would signal a firm commitment to transformation. This will boost the confidence of all stakeholders: investors, consumers, and downstream producers alike.
Blockchain: building trust through transparency
As things stand, the transparency problem appears intractable. The precious metals supply chain is vast and incredibly complex; tracking and tracing metals across its entire length presents a herculean challenge. Opacity has not been a consequence of negligence or apathy. With each entity keeping its own ledger, there are simply too many opportunities for corruption and data manipulation.
Blockchain turns this situation on its head. It utilises a ledger that is distributed across a peer-to-peer network. For a transaction to be added, there must be consensus from each network participant — and once it has been recorded, it cannot be altered or removed. This creates an immutable database; subject to neither error nor fraud. Building trust, therefore, does not require faith or personal relationships — it is simply a function of transparency. This enables business partnerships to scale rapidly while assuring all stakeholders of the supply chain’s integrity.
Case Study: IBM Food Trust™
Much like mining, the food supply chain is incredibly complex. There are numerous participants in the journey from farm to supermarket for even one item of food — and this complexity is multiplied by each product and its components. 400 000 people die each year as a result of food contamination. It is difficult to avoid epidemics — let alone ensure food safety — when it can take weeks to trace their origins. This causes immense damage to public safety, along with consumer confidence and business reputation. To remedy this, IBM partnered with Walmart to develop a blockchain solution. It succeeded in creating end-to-end transparency and near-instant traceability. Multiple industry giants, including Nestlé and Tyson Foods, have now adopted the platform.
Just as consumers expect supermarkets to meet health and safety standards and their trust is eroded by, say, getting salmonella from bean sprouts they expect their ethical standards to be met by producers and retailers. (In fact, these two points are deeply linked: moral disgust evolved from pathogenic disgust). Those who visibly meet these standards reap the rewards. When businesses are transparent about their operations — the value they provide and the work that goes into it — they increase sales, satisfaction, and crucially, trust. Mining provides immense value to society by rendering possible technology we could not (or would not) live without. It is making steady progress on improving social and environmental impacts. Indeed, it will be key to a high-tech, eco-friendly future. Yet, without transparency, this is not evident to investors or consumers. The missteps of the few tarnish the public reputation of every business in the industry if they cannot differentiate themselves.
Conversely, those who lead the transformation have everything to gain. Transparency has a far greater impact on trust when it is voluntary — and not perceived to be provided begrudgingly, as may be the case when only provided for regulatory compliance. Miners should proactively form transparent partnerships with like-minded organisations in the supply chain. By demonstrating a positive impact on consumer and investor sentiment, transparency-innovators will become sought after suppliers, and translate strong balance sheets into market capitalisation.
Karuschain’s mission is to set this revolution in motion. Its sophisticated implementation of smart contracts — using Ethereum and Hyperledger blockchains — enables interoperability and integration across a wide range of platforms. Combined with a modular build, this allows for ease of adoption across both legacy and innovative systems without disruption. The platform and the partnerships it empowers thus have the freedom to evolve dynamically. This is a chance to write the corporate social contract of the future: to create a supply chain that reflects the values of modern society; to align the prosperity of business with the planet and its people.