Law, regulation and technology – a changing landscape

Today I want to take a look at the sometimes uneasy relationship between the law, regulators and the technology industry. More specifically, I want to explore how that relationship is evolving and the implications it has for businesses and brands of all sizes.

Regulation2.png

The pace of innovation right now is breathtaking. In Silicon Valley, it seems to move at lightning speed. The modern version of the Valley was founded on companies with bold visions for the future – how we live, work, communicate, even travel. But regulators have struggled to keep pace. The fact is, many of these entrepreneurs rarely consider how they fit into the regulatory patchwork that exists to protect consumers and the broader market, prioritizing innovation and market dominance instead.

Case in point: You don’t have to look far to find a major company in battle with a regulator – Uber, Lyft, Amazon and Airbnb, to name just a few. Given the length of time it takes for a law or regulation to come into effect, companies can take full advantage of the lengthy process to secure customer loyalty and, in some cases, dependency. But does that pay in the long run?

Regulation3.jpg

In the past year or so we have seen a growing tide of discontent among customers, regulators, privacy activists and employee rights advocates who believe this level of unchecked innovation is compromising our most fundamental values and legal protections.

One example of this discontent is how technology companies handle personal identifiable information (PII). Today, a treasure trove of highly sensitive PII (financial data, health data, phone records, online search histories, etc.) sits with a variety of different companies, including banks and their third-party marketing agencies, health institutions, retailers and government agencies.

The 2013 hack of Target, which saw the credit and debit card information of 40 million customers compromised is a good example of the scope of damage that can occur when an organization fails to make compliance a top priority. The fallout and PR implosion that followed was huge. Company traffic and sales took an immediate and substantive hit, and the financial cost in class action lawsuits and settlements with affected banks and credit cards companies came to almost $150 million. In terms of brand damage, it is almost impossible to quantify the cost, particularly when it emerged that Target had been previously alerted to suspicious activity after hackers infiltrated its network and chose to ignore it. Worse, Target was not immediately forthcoming about the scope of the breach, which only amplified the backlash.

regulation5.png

On the other hand, after a rocky regulatory start which resulted in a wave of negative PR, both Uber and Lyft have prioritized working with politicians and policy makers to establish a body of regulations that both the general public and innovators could live with – clarifying the “gray areas” that innovative companies have a tendency to exploit in their early stages. As a result both companies have attained legal status for ridesharing in California. Their actions reflect a growing recognition that ignoring regulatory, legal and political realities may yield short term results but can turn into a costly PR and legal challenge in the long run.

It is vital that companies – not just those that hold large volumes of PII or operate in highly regulated industries, but also those that exploit under-regulated industry segments — recognize the implications of this ongoing tension between innovation and regulation and take a long-term view. We recommend focusing on these three key principles:

  • Continually assess the changing regulatory market in which your company operates and prioritize compliance.

  • Never sacrifice customer care on the altar of innovation.

  • Implement a smart PR strategy that takes a long-term look at your business. It’s a lot cheaper than hiring an army of expensive crisis communications experts after the fact.

Next week we will delve deeper into the role that PR and communications can play in helping companies stay one step ahead in this new environment.