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I want to take this opportunity to announce the early online publication of my article, "Trust platforms: The digitalization of corporate governance and the transformation of trust in polycentric space," (2024) 18 Regulation & Governance -- (https://doi.org/10.1111/rego.12614).
The article, part of a group of essays considering the evolution and manifestation of trust in a age of digitalization--The Impact of Emerging Technologies on Trust and Governance. My thanks to the editors, who brilliantly guided this project along: Primavera de Filippi —CERSA / CNRS and Berkman-Klein Center / Harvard University; Morshed Mannan —European University Institute; and Wessel Reijers —Paderborn University.
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My contribution focuses on trust in the quite remarkable transformation of corporate governance from the 1980s. That transformation was built around the premise of trust but had several moving parts. One was the change in the basic premise of the role of trust in corporate governance from one that was invested in trust of the individual--especially officers and directors to one that became increasingly trusting of systems of assessments of the trustworthiness of those key governance actors. Another was the embrace of the possibilities offered by the digitization of corporate operations, through which it became possible to transpose text and an emphasis on qualitative measures to data and quantitative measures. Digitization made digitalization possible, the use of digital technologies to change the trust based governance model from one that focused on the individual to one that focused on the development and application of systems of assessing trustworthiness. The third was the detachment of the processes and operations of systems of trust assessments from the corporate entity , a detachment made possible because the detachment of trust from the individual to system of assessment, and the transformation of systems of assessment from qualitative and analogue to digital and quantitative measures also suggested that the entity was less trustworthy as the place where such trust assessments (of itself) ought to be undertaken. That detachment was made efficient by the development of platform and platform operations, spaces where consumers and producers of trust factors could interact. The result--the premises and assumptions about the proper management of trust within the field of corporate governance became unrecognizable by 2024. The language of trust and the principles of its measure remained functionally similar--but its methods, forms and operation changed dramatically. It is to that transformation and its consequences that the article is directed.
There it is--a non linear journey from trust in people to trust in systems, from trust in qualitative to the rule of quantitative measures, from digitization (the digital representation of objects and actions) to digitalization (the leveraging of digitized data through digital technologies), from digitalization as an instrument to digitalized systems that might eventually become self-aware, from a strong alignment between entity and accountability to states of detachment between entity, and trust systems, and from detachment as functionally differentiated disaggregation to re-integration as processes of digitized production and consumption of trust and trust mechanics. The mix of these trajectories produces a spectrum of application that share in common the need to confront these trajectories but in which context (time, place, space) and capacity produce sometimes vastly distinctive applications. And over all of this are the mechanics of markets and public legality, each, in its own ways producing impulses to coordinate, fracture, and unify. Taken together neither trust nor corporate governance today would be recognizable by those who might be credited with setting this all in motion in the last third of the twentieth century. Welcome to the welcome to the digital governance trust disco dance platform.
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The article is open access and may be accessed and downloaded from the Regulation and Governance website HERE. The article may be accessed directly HERE. For a taste, the abstract and Introduction follows below.
Trust platforms: The digitalization of corporate governance and the transformation of trust in polycentric space
Abstract
This contribution considers the revolution in the concept and practice of trust in corporate governance that first moved from trust in “people” to trust in “compliance,” setting the stage for the digitization of trust measures and the digitalization of compliance. Part One examines the fundamental challenge, one that arises from the near simultaneous shift in cultural expectations about trust from trust in character to trust in measurement, and then the rise of cultures of data driven systems of compliance and accountability. Part Two then considers the transformation brought by challenge responses in the form of three closely interlinked impulses: digitization, digitalization of compliance-accountability regimes, and the emergence of platforms as spaces for trust interactions among stakeholders. Part Three then examines the current shape of these iterative dialectics, including connections between platforms and polycentric trust governance, and the detachment of trust from the entity that is its subject.
1 Introduction
“Man uses the spoken or written word to express the meaning of what he wants to convey. His language is full of symbols, but he often employs signs or images that are not strictly descriptive … Man … never perceives anything fully or comprehends anything completely … No matter what instruments he uses, at some point he reaches the edge of certainty beyond which conscious knowledge cannot pass.” (Jung, 1964, pp. 20–21)
Since the 12th century, and within its construction in Germanic languages including English, trust was understood as a relational concept (Etymology Online, n.d.). On the one hand, it was grounded in reliance by the person or institution extending trust; that reliance included at its inception a connection to faith in character of the object of trust. On the other hand, it referenced the character of that faith or reliance, that is, what made the object worthy of trust: “the veracity, integrity, or other virtues of someone or something” (Ibid.). Trust expresses both the faith (by those who trust) and “fidelity or faithfulness” (good faith) of those worthy of such faith or reliance. To be trust-worthy, then, implied a mutual embrace of shared values and the expectation that those values would direct and govern the activities of the parties. “our trust in y is based on our trust in our beliefs about y, which is based on our trust in the sources (often social) of those beliefs” (Castelfranchi & Falcone, 1998). The objectives of trustworthiness in corporate governance modulates from one based on individual trustworthiness to one based on trust in systems of governance quality; the character of the modulation, in turn, reflects digitalization of corporate governance performed against polycentric governance orders, most recently in the area of human rights (Quijano & Lopez, 2021).
Trustworthiness produces a critical organizational consequence—the confidence to engage in relationships and ultimately to maintain the coherence and operations of collectives (Bodó & de Filippi, 2022; Pettit, 1995). This core premise of trust defined the fundamental principle around which the legal effects of relationships, and its premises with legal effect, could be constructed around risk mitigating systems of trustworthiness. One merges here what Luhmann might have thought incapable of amalgamation—the belief premises of confidence systems and the risk assessment premises of trust systems (Luhmann, 1990; Rodriguez, 2007). The mechanics of trust and its confidence enhancing consequences have institutional and regulatory significance (Pettit, 1995, pp. 220–225) (history of iterative predictability and replication, loyalty, and independence manifested as an ability to act). Trust as reliance and faith in character, and the expectations that this produced, were deeply embedded in the law of corporations as it developed in the United States (one notes, however, a generalized convergence of notions of director duties in European and Chinese systems; e.g., Gerner-Beuerle & Schuster, 2014, 199 (Europe); Xu et al., 2013; see also Amatucci, 2015, 105 [“une tendance, tant dans l'ordre juridique américain qu'italien, en faveur du déplacement du barycentre des fonctions de l'organe d'administration vers la surveillance, envisagée dans le sens que nous avons présenté” (trans:) “a trend, both in the American and Italian legal order, in favour of moving the barycenter of the functions of the administrative body toward supervision, considered in the sense that we have presented”]).
Trust, then, was both presumed and manifested in and through individuals. It was qualitative in the sense of privileging character and was premised on the assumption that people ought to be trustworthy until they produce evidence (of conduct or character) that overcomes the presumption. This is a notion that survives still, for example, in the mechanisms for licensing professionals which remains grounded in the individual, in character, and in the (political and individual) therapeutic (Sloane, 2001).On the contrary, it appears that directors are entitled to rely on the honesty and integrity of their subordinates until something occurs to put them on suspicion that something is wrong. If such occurs and goes unheeded, then liability of the directors might well follow, but absent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists … If he has recklessly reposed confidence in an obviously untrustworthy employee, has refused or neglected cavalierly to perform his duty as a director, or has ignored either willfully or through inattention obvious danger signs of employee wrongdoing, the law will cast the burden of liability upon him. (Graham v. Allis-Chalmer, 1963)
That was 1963. Nonetheless mimetic iterations of governance trust tropes do not produce reproduction (Benjamin, 1935), nor must one read causality into the pathways of mimetic reproduction (Backer, 2024). By 1996, faith in trustworthiness of the enterprise of and in the key actors responsible for its operation had eroded (Le Grand et al., 2008). This erosion occurred alongside the erosion of faith in the trustworthiness of the state (Weiskopf & Willmott, 2013). The locus of trust migrated as well. It moved from a focus on people as the objects of trust and a faith in their character as the touchstone of trustworthiness, to a faith in accountability and a reliance on the perfection of systems of monitoring and surveillance from which an accountability grounded trustworthiness could be enhanced (Dai, 2021, forthcoming; Frink & Klimoski, 1998). Character was no longer presumptively trustworthy; inference from evidence, what could be measured and assessed appeared to provide a sounder basis for evaluating trust. Trust and accountability became intertwined (Ammeter et al., 2004). That intertwining found expression in the fiduciary duty law of corporations (In re Caremark International Inc. Derivative Litigation, 1996; in its contemporary form in Stone v. Ritter, 2006). The Chancellor in Caremark first embraced the concept of trustworthiness of individuals as having legal significance (In re Caremark, supra, 698 A.2d at 969–970). He then noted the shift from the reliance on personal trustworthiness to the trustworthiness of accountability systems grounded in the assessment of the good faith of persons in crafting and operating systems of enterprise accountability based on monitoring and surveillance (confirmed in Stone v. Ritter, 2006); trust in the system produced the standard against which the good faith (trustworthiness as fidelity or faithfulness) of those charged with its operation would be judged (Ibid. [the standard: “fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties”]). Law now assumes and privileges an alignment between trust (worthiness), legal compliance, and accountability (Nooteboom, 2002). “Thus, I am of the view that a director's obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards” (In re Caremark International Inc. Derivative Litigation, 1996, 698 A.2d 970).
By the second decade of the 21st century, trust in the enterprise was substantially understood as a function of trust in its system of accountability (De Haan & Bardoel, 2011). This transformation mirrored a general shift in governance away from a reliance on the premise that people act lawfully. The 2021 proposal by the U.S. Treasury to IRS to monitor bank transactions over $600 was grounded in these changed baseline expectations of trustworthiness: “In September, Sen. Cynthia Lummis (R-WY) challenged Yellen during a Senate Banking, Housing, and Urban Development Committee hearing, asking her: ‘Do you distrust the American people so much that you need to know when they bought a couch? Or a cow?’ (Cole, 2021).” That trajectory mirrored efforts in China to develop a data based comprehensive social credit system to enhance trust and trustworthiness through mechanisms of ratings tied to rewards and punishments (e.g., De Jonge, 2021). Though outside the scope of this essay, the trajectories of Chinese social credit and trustworthiness in corporate governance might be understood as converging (Backer, 2018). Likewise, it is possible that the mechanics and sensibilities of the thrust toward quantification of functionally differentiated aspect of trust advantaged or social ordering behaviors, some starting decades earlier (Polillo, 2011), evidenced alignment of some sort of alignment (Ftiti et al., 2022), perhaps around the concepts of descriptive and predictive risk assessment (The Basil Committee on Banking Supervision, 2000) with the movement toward trust mechanisms within corporate governance evidenced, for instance in the U.S. caselaw described above. This may be particularly evident in the connection between the movement toward the quantification of financial creditworthiness in the United States (Lauer, 2024) and its mechanisms and broader application both in the Chinese social credit context (State Council of the People's Republic of China, 2014) and in the compliance and accountability context elsewhere (Backer, 2020). The nature of the connection may be dependent on one's baseline for operational analytics: one might read into that convergence a linear and certainly a causal relationship; one might also understand that alignment as an expression of an iterative pattern, the mimetic dialectics of which produced the tropes and practices of the current stage of historical development.
Trust in an enterprise, and the individuals responsible for its management and operation, itself also became manifested in systems of accountability beyond the enterprise itself; trust systems became an exogenous constraint on or factor in governance like crypto economics (Schneider, 2022). One could trust an enterprise because a trustworthy third-party certified trustworthiness and could hold the enterprise to account (Meidinger et al., 2003). Those systems of accountability, in turn, produced a law of good faith (fidelity and faithfulness) that could be used to seek remedies from individuals responsible for the trustworthiness of the enterprise and of the systems of accountability necessary to ensure such trust. The reciprocal relationship between those who trust and the trustworthiness of the object of trust thus became substantially more abstract. At the same time, it became increasingly tied to accountability (of individuals and institutions) and compliance systems whose basis in expectations and values could vary, producing not just variability in the meaning and normative performance of trust but also multiple regulatory sources for authenticating trust (Chang et al., 2006, pp. 25–64). That reciprocal relationship between those who extend trust and the trustworthy became more generalized as the core premise of enterprise trust were manifested in the laws of mandatory disclosure (Cossart et al., 2017), in the rules for exercising prosecutorial discretion against enterprises, and in the expectations of enterprise trustworthiness with respect to legal and normative responsibility (Smit, Holly, & McCorquandale, 2020; United Nations, 2011). This last was also tied to principles of risk and risk avoidance through the “prevention, mitigation, and remedy” principle embedded. For example, in the UN Guiding Principles for Business and Human Rights principles around human rights due diligence (Fasterling, 2017) and more generally around corporate governance and risk management (Kalia & Gill, 2023).
This move toward regulated self-regulation of trust in enterprises and their personnel and operations (Schulz & Held, 2004), undertaken through accountability and (legal) compliance and risk mitigation, produced challenges of information and analytics as the mechanics of this movement. If faith or reliance on veracity, integrity, or other virtues was the basis of trust, then it was necessary to define those terms, and to determine how one might measure them against an ideal of trustworthiness. Where once that was understood as essentially a qualitative measure, one triggered by knowledge of conduct deviation (Allis Chalmers, supra), increasingly the systematization of trust within the structures of compliance-based accountability shifted methodology to quantitative measures represented by the trustworthiness in systems of ensuring enterprise trust (Stone v. Ritter, 2006). That shift was made possible by significant advances in technology and a growing appetite for quantification and assessment against societally (or legal) constructed ideals. Trust, then, and especially trust in enterprises appears to have started moving from a faith in alignment of values and their application to enterprise conduct of those judged trustworthy, to assessment based on the quantification of deviation of data from an ideal.
In this sense, the concept of trust meandered from faith or reliance to a data driven assessment (Porter, 1996). That turn to assessment, in turn, appeared grounded in analytics based on the calculation of (acceptable and unacceptable) deviation from the ideal of trustworthiness (in the context in which it was deployed). That movement, in turn, appears to have produced incentives toward efficient marshalling of data as the necessary predicate for the operation of the quantitative analytics at the heart of accountability systems, the assessments of which are now instrumental in the construction of enterprise trust. This movement toward data-based quantification in assessment and accountability produced a parallel movement toward digitization, that is the process of converting information into digital form. That digitization is an essential iterative addition, the application of which changes the mimetic mix that, to those whose interpretive lenses are fixed on causative relations, may appear as a step in the process of developing and operating the analytics necessary for trust assessments through accountability measures. This is part of a general trend in the digitalization of economic activity and its institutional structures (Gobble, 2018). Datafication has sometimes been used as a general descriptor of the use of digitization to aid in the transposition of qualitative measures to quantitative data (Mejias & Couldry, 2019).
The turn to data digitalization has shifted the process of demonstrating trust from presumptions of trustworthiness that must be overcome to the analytics of trust generated through the production of internal digitalized data metrics; it also marked a shifting from internal accountability systems to digitalized services in trust (Alves et al., 2012). The turn to quantification, datafication, then provides a language and approach to the use of datafied subjects to produce analysis and judgments (assessments), one of which is trust (now translated back in the form of a judgment, to the analogue). Those in turn, are consumed internally by corporate actors as well as externally by consumers, creditors, regulators, and the public (Josang et al., 2007)—that is trust itself (or trustworthiness as a conclusion) is utilized through platforms (OECD, 2019, 20). Trust in enterprises, then, becomes a conclusion (an assessment) which is ideologically informed (Tetlock et al., 2013). That objectification of trustworthiness is in turn based on the application of analytics to accountability systems operated internally and externally to develop not just assessments of trust, but also trust ratings. These, in turn, produce platforms for the rating of trust rating, and so on (Banerjee et al., 2017).
This transformation of the object and character of trust in enterprises brings intertwines three related themes the examination of which is the objective of this contribution. The first touches on the digitalization of corporate governance expressed through the ideologies of corporate accountability and compliance (Backer, 2020). This digitalization is expressed as data driven governance expressed through algorithmic analytics and operated within platforms (Backer, 2018). One must now trust the technologies of trust (analytical quantification systems) to produce assessment of enterprise trustworthiness (Porter 87–190). The second examines the way that these changes affect the character and expression of trust in these entities and their governance (Anderson, 2019). Trust has been subsumed within cultures of compliance and accountability and infused with the animating principles of prevention-mitigation-and remediation (O'Brien, 2019; Swift, 2002). Trust is informed by the capstone architecture of cultural hard wiring—the principles (embedded in “coding” language of law, for example)—and its digitalization changes its application (chapters in Braithwaite & Levi, 2003). It is the way in which old law sensibilities are embedded into systems of digitalized governance—the elaboration of systems of translation and transposition—that may ultimately shape the way that trust in institutions are undermined, or the measure of that potential reshaped. It is a small step from digitalization and assessment to modeling and predictive analytics of trust and trustworthiness (Tan & Thoen, 2014). The third then explores the polycentric element in the construction of these data driven governance principles and practices, that reconstitutes the trust-accountability nexus within trust platforms (Ostrom, 2010; for a conceptual history, see Aligica & Tarko, 2011). Polycentricity, generally understood at its broadest as a social system (or ecologies of social systems) of multiple decision-centers of varying autonomy operating within overlapping spaces of social relations, here functions not merely as an expression of that diffusing and overlapping of governance, within a sub-set of social relations, but also in aligning governance within chains of responsibility delegation within systems of social relations sometimes organized by and through law (Backer, 2016a). Its fractures represent the effects of a politics of quantification (datafication) through digitalization the produce different problems of trust and different forms of control (Fligstein, 1998) and its manifestation in the construction of multiple systems each of which is both an instrument of trust making and the object of examination for trustworthiness in its own right (Spiegelhalter, 2017).
The interconnection between these themes frames the thesis of this contribution: Emerging cultures of accountability and compliance have shifted but not undermined the objectives of trustworthiness in corporate governance from one based on individual trustworthiness to trust in systems of governance quality, a shifting that has been enhanced and is being shaped the digitalization of corporate governance and the emergence of a polycentric order of transnational regulations (e.g., human rights due diligence instruments) (Marcuse 1982, 147). While widely recognized conceptions of trust inform systems of decentralized, digital governance, the principles and practices of such governance recasts trust and its relationship to accountability within corporations. The argument made here is that this leads to what might appear as contradictions between traditional systems of faith in the trustworthiness of the enterprise and its principal (human) manifestation, on the one hand, and the emerging faith in the trustworthiness of systems of accountability from which enterprise trust can be objectively measured against an ideal-type, data-based metric (Sassen, 2021; Sassen & Kourtit, 2021) (closed systems that are generic and grounded in surveillance). Indeed, digitalization inverts the relation between the mechanisms trust and its traditional object. Trust in enterprises, then, become a function of trust in trust accountability systems. Competition among such trust accountability systems and the norms from which trust is measured produces polycentric regimes of transnational corporate accountability, and of measuring trustworthiness, that simultaneously enhances (through systems of exogenous objectification) and undermines (through incompatible standards and methods of trustworthiness) enterprise trust (Bodó & de Filippi, 2022). In this respect there is a parallel with but not a convergence of, trust measuring and financial ratings measures (Hilscher & Wilson, 2017; Sandberg et al., 2022). It touches as well on the interconnection between movements toward decentering the role of the state as regulatory as well as polycentric regulation which recognizes the regulatory power of collectives beyond the state (Black, 2008).
This thesis is closely examined through the lens of contemporary efforts to develop a law of mandatory human rights due diligence for enterprises. The movement toward the legal regulation of human rights due diligence illustrates the movement from trust in enterprises as they built their supply chains to a distrust of those enterprises, at least in their capacity to respect human rights throughout those chains. Trust was refocused from one that was centered on faith in the trustworthiness of enterprises and a presumption of (faith in) all actors in the supply chain to comply with their responsibilities, to one that focused on the construction of systems of accountability from which trustworthiness could be determined. That movement ultimately was systemized at the international level through the soft law instruments of human rights due diligence built into the UN Guiding Principles for Business and Human Rights (2011). That trust in due diligence mechanisms as the objectification of trust assessment produced the development measurable systems of diligence and their analysis that dovetailed with the emergence of digitalized enterprise governance. The due diligence mechanisms were then detached from the enterprise itself. That produced a double trust issue: first, the trustworthiness of the enterprise based due diligence assessments measured against an ideal, and second, the trustworthiness of systems of assessment. Digitalized trust systems in this sense effectively reproduce a blockchain like space (Davidson & Potts, 2022 [technologies that industrialize trust]) in the design of accountability as a techno-social system (Bodó, Brekke & Hoepman, 2021b). A polycentric element was added where the systems of trust assessment (compliance with the requisites of human rights due diligence) were undertaken by private third-party enterprises applying simultaneously multiple domestic, private, public, and international standards systems (Backer, 2012). Trust enhancement then produced a movement back from privately ordered trust assessment to publicly managed legal compliance by transforming the issue of trust from a markets-based and relational issue to a regulatory one overseen by the state (Bayern, 2021; Bright et al., 2020). The character of that transformation was well evidenced in the 2021 efforts to develop and enact a human rights due diligence system overseen by the state in Germany and within the European Union (Mateus de Albuquerque, 2019). The consequence: the state, ultimately, becomes the trust platform through which enterprise trust authenticating systems operate (Dai, 2021, forthcoming) reducing and managing risk exogenously (Smit, Bright, et al., 2020).
This Part One described the problem and the challenge, one that arises from the near simultaneous shift in cultural expectations about trust from trust in character to trust in measurement, and the rise of cultures of data driven technologically complicated systems of compliance and accountability. Part Two then considers the transformation brought by efforts to respond that challenge. These consisted of three closely interlinked trajectories: digitalization, complex compliance-accountability regimes, and the emergence of platforms as the space within which collectives of consumers and producers of governance and trust related data could interact. Part Three then considers the current manifestation of these iterative dialectics by examining the structures that have emerged as a product of those trajectories. The first is the constitution of polycentric governance standards around which entities must now navigate and the second is the detachment of trust from the entity that is its subject. That is, it considers the rise of trust platforms as the autonomous point of engagement through which the trustworthiness of corporate governance is negotiated (Backer, 2016b).
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