Archive for the ‘ pacing problem between innovation and law ’ Category

The Need for a U.S. Sponsored Blockchain Platform

We have a problem in the United States: What is needed is the government creating a blockchain platform that crypto startups can build on. Think about historically what the government adoption of the Telegraph or the Railway, among other government initiatives, did for the U.S. economy. Without the legal certainty that the technology is supported, its great potential cannot be realized in the United States. We are partially limited because of our excellence in legacy systems. There may also be fears of loss in employment statistics but all this is all rather short sighted.
 
I see daily how clients/advisees are interested in crypto transactions but are holding back because of lacking regulatory guidance. Were the government to embrace the technology by way of a government sponsored blockchain initiative or platform, the US would undoubtedly become a leader in the crypto economy very quickly. It’s time to embrace Blockchain Technology quickly!!!!
 
Russia and Singapore are already embracing Blockchain technology and Ethereum. If Russia implements Blockchain Technology and Ethereum first, it will gain similar advantages to those the Western countries realized at the start of the internet age because Blockchain Technology may have the same effect on businesses that the emergence on the internet once had — it would change business models and create enormous opportunities for growth.
 
Adoption of Ethereum in Russia has already been brisk also in the private sector: last week, Bloomberg reports that Russia’s state development bank VEB agreed to start using Ethereum for some administrative functions. Steelmaker Severstal PJSC tested Ethereum’s blockchain for secure transfer of international credit letters.
 
See evidence of Russia’s ambitions in Blockchain:    http://www.zerohedge.com/news/2017-06-12/putin-meets-ethereum-founder-create-national-virtual-currency
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Future of Innovation and Law

A wave of innovation and decentralization is sweeping across the world, challenging the traditional role of law, lawyers and law schools. Central themes from an Incredibly energizing and enabling course co-taught with @erikpmvermeulen at @USTLawMN “Disruptive Innovation – Why Lawyers Matter” include in order of priority: #innovation, #innovators, #platform, #entrepreneur, #bigdata, #blockchain, #smartcontracts, #machinelearning, #ArtificialIntelligence, #InternetOfThings, #sharingeconomy, #legaltech, #regulation, #regulate, #corpgov, #governance, #legal.

Future Companies and Governance

What should companies do to be successful in the future? What kind of structures, practices and processes will best equip a firm to reinvent itself and its products? How can firms transform themselves into 21st century companies? The Answer: Firms should adopt a decentralized and open model of innovation, value creation and growth. Ecosystems and platforms are the new normal. Companies that understand “how to organize now for success tomorrow” (@erikpmvermeulen) will win. Such companies understand the power of the ecosystem and platforms. These companies appreciate that governance is not only about disclosure and achieving sustainable long-term investment and growth but about engaging in an open dialogue, open “personalized” communication with all the stakeholders (not just customers or shareholders).

20th century companies:

  • profit driven
  •  hierarchy
  •  formalistic
  • closed networks
  • job security

21st century companies are better and embrace new values to innovate and stay relevant:

– – mission driven

– – flat hierarchies

– – inclusive

– – fluid

– – open communication

– – millennials

– – best idea wins

– – decentralized

– – crowd-culture

– – platform-enabling

– – create ecosystems for continuous innovation

@wulfkaal & @erikpmvermeulen We use Under Armour as an example of a 21st century company that is embracing the “platform economy”. Its connected fitness platform and open platform of innovation (ideahouse.ua.com) are examples. The Brand House shows that Under Armour lives its values: Act like a global citizen, Think like an entrepreneur, Create like an innovator, Perform like a teammate.

Regulators

When and how should regulators regulate disruptive innovation? Will technology replace regulators, regulations, and lawyers? A possible answer: A need for flexible and inclusive processes exists that involves startups, established companies, regulators, experts and the public. Innovations and regulatory responses must be tested in a “live” environment. To a certain extent, this regulatory approach is recently adopted in the financial industry with the introduction of “regulatory sandboxes”. Dynamic regulatory processes (@wulfkaal) can play a central role in the new world of innovation. Regulators will have to offer more guidance on how to “organize for innovation.”

Lawyers

The lawyers and law firms of the future distinguish themselves by embracing legal tech, join one or more of the emerging legal platforms (e.g. www.digitorney.de) and legal communities and operate as a bridge between the diverse range of actors (accountants, designers, ML engineers etc.) that must now work together in dealing with challenges of the sharing economy. During the course, we show that the development of new platforms and ecosystems, blockchain technology, smart contracts, internet of things, big data, machine learning, and artificial intelligence plays a central role in the future of law and cannot be ignored.

Key Takeaways

Key takeaways of the “Disruptive Innovation – Why Lawyers Matter” course include the recognition that blockchain technology and smart contracts will change the way we live, work and learn. Blockchain-based smart contracts will help scale and accelerate the sharing economy and enable the development of Internet of Things applications. These applications will disrupt the business of law, but will also lead to enormous opportunities for legal professionals. They will have to rethink “legal concepts” in the areas of property law, corporate law, contract law, etc.

Course Description

The purpose of this course is for students to gain an understanding of the exponential rate of disruptive innovation in a broad array of industries, the effect on corporations, the possible approaches for regulating such innovation, and the role of lawyers in this context.

The course examines the exponential rate of disruptive innovation affecting multiple industries. Students will learn about concrete real-life and data-driven examples of disruptive innovation and the short- and long-term effects of this innovation, including the emergence of flat corporate hierarchies to foster innovation and ensure the best ideas prevail in corporations struggling to stay relevant, open communication, and inclusivity. The course will examine innovation driven business cycles and highlight examples pertaining to corporations that failed to institute relevant changes to remain relevant in the face of disruptive innovation (Kodak, Nokia, among others). We will also examine how and why certain corporations (Amazon, Google, Tesla, Under Armour, among others) continue to thrive and what changes they instituted, allowing them to capitalize on disruptive innovation. More specifically, we will examine the emergence of “Dinosaurs” (companies that find themselves in a process of slow and terminal decline); “Unicorns” (large companies that remain private in order to avoid the stifling effects of post-IPO regulation); and “Governance Renegades” (public companies that adopt unconventional corporate structures in order to retain the pre-IPO-start-up-feel).

Given these governance changes and new structures imposed by disruptive innovation, the course examines the role of attorneys in this rapidly evolving environment. Students will learn about the legal relevance of the evolution of business strategy, technology, and the application and evolution of artificial intelligence in businesses. Based on the understanding of challenges and opportunities presented by disruptive innovation, students will develop the ability to discern their own possible value proposition in the disruption of businesses in various industries. The course will evaluate the different skills that allow students to remain relevant including soft skills, psychology, and the ability to understand business cycles and technology. The course emphasizes the importance of student skills at the intersection between law, business, psychology, and technology.

Dynamic Regulation Via Investment Data as a Remedy for Law’s Diminishing Capacity to React to Innovation

First published at: https://www.law.ox.ac.uk/business-law-blog/blog/2016/09/dynamic-regulation-investment-data-remedy-law’s-diminishing-capacity

Key words: Disruptive Innovation, Venture Capital, Venture Investments, Dynamic Regulation, Feedback Effects, Optimized Information for Regulation, Anticipatory Regulation, Big Data

In a series of recent papers – ‘Dynamic Regulation for Innovation’, ‘Regulation Tomorrow: What Happens When Technology Is Faster Than the Law?’, and ‘How to Regulate Disruptive Innovation – From Facts to Data’ – I evaluate the diminishing relationship between regulation and innovation. The so-called ‘pacing problem’ between innovation and regulation suggests that innovation driven by science and technology is accelerating, yet, simultaneously, federal and state agencies’ regulatory processes have slowed down.

Several factors contribute to this pacing problem. Some consensus exists that the legal and evidentiary burdens placed on regulatory authorities have increased substantially over time, precipitating the remarkable slowdown in rulemaking by regulatory agencies. The growing divergence between the time cycles of technological innovation and the time cycles of governments around the world contributes significantly to the pacing problem. Systemic factors such as the political and ideological structures in the rulemaking process, the political gridlock in a two-party system that impedes the passing of legislation, legislators’ disagreement on how outdated statutes should be updated, and the need for crises to precipitate legislative action also help to explain the pacing problem.

 

The existing regulatory infrastructure contributes significantly to this problem. In the existing regulatory framework, the regulatory challenges presented by disruptive innovation are largely associated with facts-based, ex-post, trial-and-error rule-making, with stable and presumptively optimal rules. In essence, some evidence exists that governments mostly regulate to react ex-post, after problems arose in the existing regulatory framework but rules are always assumed to be optimal even though optimality is unattainable in a rapidly innovating and increasingly complex world. Other regulatory challenges are presented by the slow speed of regulation, and ever-increasing unknown future contingencies in rulemaking. Because facts-based, ex-post, trial-and-error rule-making cannot anticipate regulatory issues created by innovation, rule-makers may not – or may much too late – realize what new regulatory demands apply to a given innovation. Rule-makers’ near exclusive reliance on stable and presumptively optimal rules created to attain permanent solutions for perceived regulatory issues ignores the ever-changing environment for rules driven by the exponential growth of technology, and the associated exponential growth of innovation.  The timing of regulation in an environment of exponential innovation is a primary problem for regulators. Formal rulemaking in the existing regulatory infrastructure is almost always too time-consuming because the speed of product innovation often makes regulations pertaining to an innovative product obsolete before such regulations are finalized. Finally, the existing regulatory infrastructure, with stable and presumptively optimal rules, is largely incapable of addressing the ever-increasing unknown future contingencies associated with disruptive innovation. Given the pace of innovation, future contingencies in rulemaking are likely to increase substantially, making the dynamic anticipation of future contingencies more important for rulemaking.

Lawmaking and regulatory design need to become more dynamic and anticipatory in their efforts to address this pacing problem. Increased reliance on different sources of data surrounding new technologies can provide some signals or clues about what, when and, to a certain extent, how to regulate.

Here, I show that data relating to investment in new technology and innovation is of particular importance in this context. A plethora of investment data is readily available to make accurate predictions regarding what the next ‘big thing’ is likely to be.  Such data can be used as an index or proxy for the necessity of regulation. Because start-up companies are the ones that usually challenge existing rules, laws and regulations, private data sources are widely available. The proliferation of the better hand-collected global databases on the market, such as CB Insights, PitchBook and Mattermark, can make an important contribution to a ‘data-driven’ regulatory approach.

Investment data can help to develop a list of technologies and issues that need to be the focus of regulatory attention. From such data, rule-makers can get a better – and earlier – sense of which technologies are developing and which technologies need regulatory attention. This might then allow regulators to be more pro-active and avoid wasting resources on technologies that are unlikely to make it to market. It would also allow regulators to more accurately define the scope of a technology by focusing on the type of firm that is attracting attention.

Wulf A. Kaal is an Associate Professor at the University of Saint Thomas School of Law (Minneapolis).

How to Regulate Disruptive Innovation

How to Regulate Disruptive Innovation – from Facts to Data by Wulf A. Kaal , Erik P. M. Vermeulen :: SSRN

Wulf A. Kaal  
University of St. Thomas, Minnesota – School of Law; European Corporate Governance Institute (ECGI)

Erik P. M. Vermeulen 
Tilburg University – Department of Business Law; Philips Lighting – Legal Department; Tilburg Law and Economics Center (TILEC); Kyushu University – Graduate School of Law

Abstract: 

Disruptive innovation creates increasing regulatory challenges. The reason for this is simple: Regulation is usually reactive, responding to facts. However, we currently live in a world of data, not facts. Regulation must therefore be proactive and dynamically responsive to data and trends. This paper discusses the following questions: (1) Why should regulators be proactive?, (2) When should regulators respond?, (3) What should regulators respond to? and (4) How should regulators respond? Using a dataset comprising over 77,000 venture capital deals with over 35,000 companies in the United States from 2005 to 2015, the paper shows how investment data can provide important feedback on innovation trends and associated risks for regulators, optimize the timing of regulation, and support anticipatory rulemaking.

Number of Pages in PDF File: 42

Keywords: Disruptive Innovation, Venture Capital, Venture Investments, Dynamic Regulation, Feedback Effects, Optimized Information for Regulation, Anticipatory Regulation, Big Data

JEL Classification: K20, K23, K32, L43, L5, O31, O32

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