Out-Law / Your Daily Need-To-Know

Good governance can underpin a profit model for data trusts

Out-Law Analysis | 19 Nov 2019 | 1:27 pm | 3 min. read

Data trusts can turn a profit to be distributed among shareholders while acting as independent stewards of information, providing the underlying governance framework is right.

Data trusts have potential to spur significant innovation. They envisage independent stewardship of data through a legal structure that both allows for the pooling of data from various sources and the making available of those datasets to organisations to use for their own purposes.

Pilot studies to date have focused on establishing whether data trusts can work under a not-for-profit model, but there are questions over who will pay for the costs involved in operating a data trust in the long run under this model. This has spurred debate about whether data trusts should be permitted to be profit-making, and whether that model is compatible with the role a data trust plays.

The Open Data Institute (ODI) in the UK, which has been behind a number of data trust pilots, has defined a data trust as "a legal structure that provides independent stewardship of data". 

In a report highlighting the lessons from the pilots, the ODI said: "Data trusts are independent from the organisations that hold the data, and prospective data users. In order to achieve this independence, data holders and data users may be precluded from making decisions about data access, or may be included in decision making but prevented from dominating it. Importantly, a data trust’s trustees take on a legally binding responsibility to ensure that the data is shared and used to the benefit of a particular group of people and organisations, as well as other stakeholders affected by its use."

Opponents of a profit model point to this neutral role that data trusts must play and sometimes assert individuals' distrust of traditional corporations as a reason for ignoring profit-making structures. Their concerns really boil down to whether the interests of the shareholders in a profit-making data trust, who would stand to receive dividends out of those profits, can be reconciled with the interests of data providers, data users and other stakeholders impacted by the way the data is used.

It is important to challenge this narrative if a success is going to be made of the nascent data trust concept in the long term.

Economist and Nobel Prize winner Oliver Williamson asked why corporations were so prevalent in our society. He came to the conclusion that corporations were the best solution we had managed to come up with, to enable dispute resolution at scale. I prefer the term 'decision-making' to "dispute resolution" in this context, but otherwise find it hard to disagree with his analysis.

Corporations allow us to make decisions and on a scale that matters. They serve a purpose.

Yuval Noah Harari's book, Sapiens, contains an interesting update of this analysis. Harari cites corporations as an example of our ability to create an imagined reality, so as to enable large numbers of strangers to cooperate effectively.

Sir Tim Berners-Lee echoed this at the ODI Summit in London earlier this week when he said that one of the ways of realising the value of data was to open it up to strangers.

One of the central learning points from the research that underpinned the ODI's report on data trusts earlier this year was that stakeholders need to be able to trust in a data trust before they will engage with it.

Trustworthiness is not always easy to engender – particularly at a time of rising populism and a consequential erosion of trust – between countries, public institutions and also within business.

Trustworthiness, in the context of a data trust, however, can be encouraged by a clear statement of purpose and by good and transparent governance to underpin that purpose.

Given that providers of data will be ceding a degree of control over their data, they will need not only to be incentivised, but also to feel confident in how and for what purpose that data will be used.

Trustworthiness is not, I believe, incompatible with the making of profits.

Good governance is something that the public markets have been wrestling with for as long as there have been public markets. We can all point to failings in corporate governance, but we can also point to examples of good governance being encouraged or imposed by the public markets. Take, for example, the recent pulling of an IPO by WeWork in light of concerns about its corporate governance standards.

With this in mind, when we discuss data trusts and the very great benefits that they can bring – and if we are serious about the sustainability of any such solution – we need to be thinking about the economic model most appropriate to address stakeholder concerns, while also encouraging the required investment.