On Talking about Blockchain at South Summit

South Summit

South Summit which aspires to be the “the Leading Innovation Global Platform focused on business opportunities and disruptive trends, that gathers together the entrepreneurial ecosystem” was held last week in Madrid. My employer, Amadeus, was a big contributor to the summit both as a sponsor and by providing speakers on various items related to travel and technology. In a strange twist of fate, my very generous colleagues in the Amadeus Corporate Strategy team – who must know that I adore the stage — asked me to represent Amadeus on a panel about “Rebuilding Industry through Blockchain”. How could I say no to the limelight?

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Obligatory onstage selfie courtesy of moderator Eneko Knorr

Besides me, the panel consisted of a serial entrepreneur/angel investor, the head of Blockchain at a major Spanish bank, and a Palo-Alta based VC. While the other panelists focused on Bitcoin and the case for cryptocurrencies, I discussed the four main uses cases that Amadeus has identified for the technology: managing traveler identity, more user-friendly loyalty programs, improving payment settlements, and baggage tracking. And while everyone else on the panel hailed Blockchain’s potential to disrupt intermediation in raising capital, I stressed that when evaluating the technology’s use cases, we had to take into account our B2B customers’ needs as well as those of travelers, and that to date the biggest problem our industry faces with Blockchain is that it simply does not meet our customers or their consumers’ demand for real-time transactions, inter-operability and customization.

So imagine that if Visa or Mastercard can process 5,000 transactions per second with the capacity to process more, Bitcoin can only process 12 per second but with the first transaction taking 10 minutes to settle. From what I understand, Amadeus processes over 50,000 transactions per second and over 50 million per day. Slowness and an IT platform’s inability to adapt on demand to customer-specific modifications and enhancements are show-stoppers in our industry. This doesn’t mean that Blockchain is not suitable but that for services like shopping, today the technology is just too slow and missing the necessary interfaces in order to make it end-user friendly.

When we got to the topic of whether cryptocurrencies were a valuable means for start-ups to raise capital, my fellow panelists were all very enthusiastic. As Amadeus does not have a position on cryptocurrencies, I kept my opinion to myself. Personally, I don’t buy the emotional argument that cryptocurrencies give more “control” to the individual over his money, or that they ultimately add value and enhance the marketplace for new ideas in ways that fiat money and the current regulations cannot.

Quite the contrary: investors want liquid markets where they can easily get their money in and out of ventures. Furthermore, efficient market theory tells us that the value of a security should reflect all available information in the market. Tech entrepreneurs may love the idea that they can cheaply raise large quantities of cryptocash without the costs and hassles of having to comply with regulations, but in the long run transparency and certainty create dynamic markets. You can raise more money on the U.S. stock exchange than say on the Indonesian one because investors know that they can easily exist an investment and that the market is efficient.

With the original securities acts of 1933 and ’34, the U.S. government wasn’t trying to protect the sophisticated investor from big corporate greed. The regulations were designed to protect the unknowing from being bamboozled by scams and ponzi schemes. They demanded transparency and disclosure of risks, exactly what today’s ICO market tends to lack with fairly scandalous, yet predictable results:

New data from Fortune Jack has found that ten of the most high-profile ICO scams have swindled a staggering $687.4 million from unsuspecting investors.

A recent study prepared by ICO advisory firm Statis Group revealed that more than 80 percent of initial coin offerings (ICOs) conducted in 2017 were identified as scams. The study took into consideration the lifecycle of ICOs run in 2017, from the initial proposal of a sale availability to the most mature phase of trading on a crypto exchange.

And if you thought you had just raised $30 million over night in Bitcoin, what is your money worth today?

So why should we think that the marketplace needs cryptocurrencies to raise capital? Certainly new ventures like AirBNB, Whatsapp, Facebook, WeChat, Twitter, Instragram, Uber, Booking.com etc successfully raised capital with old fashioned money. The more I hear someone claim that cryptocurrencies will democratize money, the more I am convinced that the speaker has either absolutely no idea what he is talking about or is full of crypto-crap. That doesn’t mean that the current VC model is not a scam itself. To a certain degree it is. But paying workers in tokens instead of money or promising investors they’ll get rich quick without full disclosure is not the solution. It’s a swindle.

If you ask me, we shouldn’t be talking about Blockchain at all. Yes, I think it will be an important back-office tool to improve efficiencies, but not life-altering. What we should all be talking about is Artificial Intelligence which — for better or worse — is the real game changer.

Finally, I really enjoyed the opportunity to speak at the event. When I got off stage, I remembered something that Bill Clinton once said shortly after leaving the presidency:  the hardest thing about no longer being president was walking into a room and not being greeted with the presidential anthem. In other words, being on stage is addictive. It feels good to be listened to and treated with undeserved respect. Earlier in my career, I spent a lot of time speaking in public, and last week at the South Summit, I remembered how much fun it was to be on center stage, especially when afterwards you get to interact with very smart people. And the icing on the cake: running into friends and former colleagues at South Summit and reminiscing about the good old days.

Thanks all around to everyone involved, especially my excellent colleagues in CST.

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Business Strategy for Lawyers on a Saturday Morning

534FA431-48B2-49A8-9AB8-BE0307F6E654.jpegA few Saturdays a year, I teach a course in Business Strategy to junior associates at Uría Menéndez through the FT/IE Corporate Learning Alliance at the IE Law School in Madrid. It is an awesome program that gives Uria’s young lawyers training in business skills that are essential to becoming more effective lawyers in today’s demanding and ever-evolving marketplace.

As great as that sounds, while I wait for the students to arrive, I can’t help but feel some sympathy for these guys who are about to be subjected to my monologues on lawyering and business strategy for five hours on a sunny Saturday morning.

Digital Transformation In-House: it takes Two to Tango

IIL-CLO

This week I was very fortunate to have attended the first of a three part workshop on Digital Transformation for Chief Legal Officers held by the Instituto de Innovación Legal in Madrid. A special thanks to María Jesús González-Espejo and Laura Fauqueur for the invitation!

It was fascinating to listen to the other participants share their experiences about the pressures their teams face in the Spanish marketplace. Most were chief legal officers and general counsels from Spanish companies or offices, and while the team I manage and the business we support are global, the challenges are the same: how to deal with containing costs, regulatory uncertainty, adapting to change, evolving skills, risks to our companies’ reputations, and how to reinvent ourselves and the value that lawyers add to our in-house clients.

We also had two practical examples of the use of artificial intelligence for the automation of contract generation and claims management and discussed what legal officers should look at when selecting a contract management tool. One of the best lessons that came out of this what that automation cannot be done in a vacuum. In other words, it is not something that belongs just to the Legal Department. You need the support and buy-in of your internal clients, aka the Business.

From our experience, automation makes a lot of sense for the Business. It not only helps in terms of simplifying the customer experience and speeding up the contracting process — bringing in revenues quicker and decreasing administrative costs — but in theory should also improve post-contract account management. Standardization should significantly make the lives of your billing departments better, making it much easier for them to prepare invoices and collect fees. Account managers — especially for those with large portfolios — will also find it easier to engage with their customers over the life of a contract. Implementation and delivery teams should enjoy the benefits of standardization and simplification, being able to quickly identify customer requirements and better allocate resources over multiple projects. For these reasons, the work flows and automation should be developed in a way that has the end-user experience at the heart of the design and benefits all of your internal stakeholders. But start small. Don’t be overambitious.

At first many lawyers — obsessed with making sure that all t’s are crossed, i’s are dotted and no loophole is left un-closed – distrust automation or at least fear that it will render our work irrelevant. But with the simplification of menial tasks, we lawyers can focus on what really adds value and where the exciting work begins: helping our clients succeed. Once we reach that realization — as we have in my team — we not only welcome that task, we encourage it.

But there is a but: it takes two to tango. I can only simplify, standardize and automate what my business colleagues are willing to do themselves on their end. Simplification takes more discipline from our sales colleagues who ultimately will have the harder task of selling a one size fits all model — as opposed to something tailor-made — to the customer than it does from us. How many times have you heard: “Just give me a one-pager”? The Business demands a simple, short contract, but when it comes to negotiating the commercial terms, they want all the flexibility in the world, and that flexibility means tailor-made, non-standard contracts. So the next time someone comes to you demanding simplification, force them to begin with the commercial terms and go from there.

It takes two to tango. We’re ready to dance. Are you?

Why Technology Favors Tyranny

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You all are going to think I am the Grim Reaper of new technologies, crying that the sky is falling at every turn. Yes, I am using this blog as a forum – amongst other things — to discuss the difficult decisions that businesses, lawyers and society need to face when looking at how new technologies like Artificial Intelligence, Blockchain and Biometrics may impact our lives. (examples, here, here and here).

Working for a tech company that invests millions in innovation, I am very interested in seeing how we can use new technologies to improve society. But in order to do that, we need to be very vigilant. The consequences of not doing so could be disastrous and significantly change the course of humankind.

Am I exaggerating? In a must read article in The Atlantic, Yuval Noah Harari (author of Sapiens: A Brief History of Humankind and Homo Deux: A Brief History of Tomorrow) makes precisely that argument:

More practically, and more immediately, if we want to prevent the concentration of all wealth and power in the hands of a small elite, we must regulate the ownership of data. In ancient times, land was the most important asset, so politics was a struggle to control land. In the modern era, machines and factories became more important than land, so political struggles focused on controlling these vital means of production. In the 21st century, data will eclipse both land and machinery as the most important asset, so politics will be a struggle to control data’s flow.

Unfortunately, we don’t have much experience in regulating the ownership of data, which is inherently a far more difficult task than regulating land or machines. Data are everywhere and nowhere at the same time, they can move at the speed of light, and you can create as many copies of them as you want. Do the data collected about my DNA, my brain, and my life belong to me, or to the government, or to a corporation, or to the human collective?

. . . Currently, humans risk becoming similar to domesticated animals. We have bred docile cows that produce enormous amounts of milk but are otherwise far inferior to their wild ancestors. They are less agile, less curious, and less resourceful. We are now creating tame humans who produce enormous amounts of data and function as efficient chips in a huge data-processing mechanism, but they hardly maximize their human potential. If we are not careful, we will end up with downgraded humans misusing upgraded computers to wreak havoc on themselves and on the world.

If you find these prospects alarming—if you dislike the idea of living in a digital dictatorship or some similarly degraded form of society—then the most important contribution you can make is to find ways to prevent too much data from being concentrated in too few hands, and also find ways to keep distributed data processing more efficient than centralized data processing. These will not be easy tasks. But achieving them may be the best safeguard of democracy.

The world my children and their children will inhabit will be vastly different from ours in ways we cannot even begin to imagine.

Amazon Rekognition and A.I. Bias

Amazon Face Rekognition

Whenever writing about face recognition technologies, particularly in the context of policing, I have raised the issue of the potential for false positives caused by unintentional biases embedded in the algorithms. Artificial intelligence tools, such as face recognition, are only as good as the algorithms they are based on, and it is very easy for the developers to unknowingly program their own biases into the algorithm, with very negative consequences:

False positives can mean that certain people are regularly stopped and potentially harassed by the police. Now imagine that the biometric engineers who set the algorithms are all from the same racial and ethnic groups, whether on purpose or not, their biases will be factored into the accuracy of the results. This will likely translate into minority groups taking the brunt of the false positives. For artificial intelligence and machine learning to be effective, it needs to be accurate at least 80% of the time. When that happens it will always be better than humans. But still, if we move to a system of Big Brother with ubiquitous cameras capturing our facial images 24/7 and the system is only 80% accurate, that leads to arguably an unbearably high threshold for potential abuse. Democracies are supposed to accept some criminals getting away with crime in exchange for the innocent not being locked up. It’s the authoritarian regimes who place law and order above the protection of the innocent.

Am I exaggerating? The American Civil Liberties Union (the ACLU) doesn’t think so. It recently ran a test of Amazon’s Rekognition — which Amazon has been aggressively marketing to police forces — by running the face recognition tool on the faces of members of the U.S. Congress against a sample of 25,000 mugshots. The results?

. . . according to the ACLU’s report, the technology is far from perfect. Rekognition incorrectly identified more than two dozen lawmakers as people who have been arrested for a crime, and the false matches were disproportionately people of color, the ACLU said. Six members of the Congressional Black Caucus, including noted civil rights leader Rep. John Lewis, were each identified as a match for a mugshot in the Rekognition database.

This doesn’t mean that we should disregard the huge positive potential for biometrics, but we need to be smart about how and when it is used.

“These results are consistent with a broader pattern of results from the machine learning literature,” Kroll told BuzzFeed News. “Not only does face recognition of large sets of individuals remains difficult to do accurately, face recognition systems have been shown to perform much less well for women, people of color, and especially women of color.

“It is important when fielding advanced computer technologies to do so responsibly,” Kroll continued. “These results show that Rekognition shouldn’t be used for some applications in law enforcement as it is currently.”

Face recognition works best with small sets of people, where it is used for the benefit of consumers and where consumers have the opportunity to opt out of the service. It is definitely not reliable in the context of law enforcement where decisions about you are being made without your knowledge, consent or control.

Unfortunately when Amazon, or other companies, get it wrong, consumers lose confidence in the new technology. That negatively affects the market perception for tools that have lots of useful applications that – when designed with consumer’s best interests at heart — can better our lives.

When in Greece, Know that You Know Nothing

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I expend a great deal of hot air preaching both here in this blog and in the classes I teach to young professionals about how important it is for lawyers, especially in-house counsel, to understand their client’s business, industry and strategy.

Two months ago, my team together with my manager Jackson Pek held our annual team building event in Athens, Greece. Jackson brought along two senior GC’s (in experience not age), Duc Trang and Evangelos Apostolou. Duc now trains lawyers and other professionals in business acumen and is due to come out with a new book about the Architecture of Deals and how to design transactions. But for our Athens adventure, Duc gave us a session on how to analyze a business’ competitive position in order to make better strategic decisions.  I hate to use the term, but it was “awesome”.

When you are the one in front of the group doing all the talking, you often forget that there is a lot of value in being the one who is listening and learning. So it was very humbling to learn from Duc. His very simple approach to assessing a company’s relative competitiveness enables lawyers (and other corporate support functions) to better engage with their clients as more effective business partners.

In today’s corporate world, HR departments spend a lot of time building up their employees’ important soft skills, but at the end of the day, little effort is made to teach business acumen. I can’t stress enough how much value legal teams get from the sort of business skills training that Duc offers, and he has a unique ability to put it into the context of what we lawyers do in our every day roles. In fact, by the end of our first session, we were already analyzing our own internal client’s competitive position and brainstorming about improved strategic approaches and better ways to focus our support. Again, it was “awesome”.

Then there was the icing on the cake. My team and I got to hang out in Athens with Jackson, Duc and Evangelos, and I got to pick their more seasoned brains with lots and lots of questions about how to be a more effective business partner and a better manager for the amazing team I work with.

It reminded me of Socrates’ “the only thing I know is that I know nothing”. Efharisto, there is always something to learn and luckily someone to learn it from.

Solutions Not Problems

Dr._No_-_UK_cinema_posterI have written before about how effective lawyers focus on providing solutions, as opposed to acting like a mere traffic light that says stop or go. A few months back, I was to talk about an experience that had an impact on my career development. I told the following story about my first day at a tech start-up more than a decade ago:

On my first day at the start-up where I previously worked, the CEO and founder who had literally made hundreds of millions selling businesses he had founded, proposed a certain marketing campaign. I sent him a lengthy email with a very well-reasoned description of why his idea was misguided. He called me into his office and said, “Eric, I know you are very smart, but I didn’t hire you to tell me that my ideas are bad. Either you make them better, come up with a better idea, or don’t come back to work tomorrow.” I was very embarrassed because I knew he was right. So often we lawyers get caught up in telling the clients what they shouldn’t do, when we need to focus on providing solutions. Whenever I find myself becoming a nay-sayer, I remember that conversation and what my role is supposed to be.

Here is a good check list of things legal teams can do to avoid becoming the “Department of No”. Nevertheless, finding solutions is easier said than done.

When I had written about what it takes to be an effective in-house lawyer back in April, one of my favorite business-side colleagues sent me a message asking to put my money where my mouth was on a particular transaction we were working on. My team had reviewed a prospective customer contract and identified dozens of potentially unacceptable terms, and my internal clients were not impressed. In that instance, I had to explain that we weren’t trying to “kill” the deal, just describe the ugly commercial conditions hidden in the contract, a document that they likely had not reviewed yet. Contracts aren’t really about the law. They are mainly about the business, so often times lawyers are simply informing our clients of the inconvenient reality of what the terms of the deal are.

But point taken. Lawyers shouldn’t aspire to be mere messengers and contract readers. We need to find ways to make a deal better than the one sitting on our desks. In the last two weeks, I have had to remind myself of that story from my start-up days to make sure I was part of the solution, not the problem. Just always keep in mind that if you ignore the problems, then you are not providing a solution either.