Technology and Digitalisation: A Double-edged Sword
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January 22, 2025
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This article was published in El Economista on January 16, 2025.
Uncertain international geopolitics and strict regulatory compliance enforcement complicate the risk landscape for any company. In this context, when acquiring a company or taking a stake in its capital, it is more crucial than ever to exercise caution and not assume that internal controls are functioning properly without verification.
Traditionally, due diligence — conducting the audit processes required for securing investors or completing an acquisition or a merger — has focused on financial, labour, tax and even reputational matters. This involves gathering quantitative data that reflect a company’s internal situation, its position relative to competitors and its standing with regulators. And in these times of great change, it is equally important to examine the departure of key clients and potential executive turnover due to talent loss, both of which can jeopardise a company’s future.
However, technological advancements have introduced nontraditional risks for companies — risks stemming from point applications, enterprise-wide software or even external platforms routinely used by employees which could lead to leaks of critical information that threaten a company’s viability. Artificial intelligence (“AI”) is the trendiest example, but it is not the only avenue through which companies can lose value.
Assessment of core technologies is essential during buying and selling processes, but of course monitoring them should also be part of a company’s everyday operations. While it’s common to believe that routine control systems are sufficient, experience shows otherwise. Escalating cyberattacks, widely reported in the news, are amongst the most discussed problems. However, beyond these attacks, the growing complexity of technology and the digitalisation of key processes necessitate heightened protection of confidential information through new measures. Ten years ago, potential risks were more limited and business risk analyses were less exhaustive. Today, sophisticated control over these technological vulnerabilities is critical, as they can cause significant problems.
Employee or executive dismissals present a clear risk of confidential information being leaked or sensitive data being stolen. To mitigate this, companies must carefully manage personnel access to information systems generally, but especially during critical moments such as ownership changes. However, issues don’t always arise from malicious intent; they can also stem from negligence or attempts to bypass cumbersome control systems that hinder business operations. A classic example is the creation of parallel file-sharing platforms to demonstrate product features to clients when working off company premises. Similarly, data leaks can occur during remote work situations — not with the intent to harm a company but through inadvertent data exposure.
Generative AI exemplifies a technological advance that can enhance company efficiency but also expose it to new risks, as misuse of this tool or lack of proper controls can create problems. Business leaders must understand that leveraging AI’s benefits requires investment in both tools and dedicated teams. Moreover, the AI deployed by a company must be trained to avoid bias, ensuring impartiality and adherence to ethical and responsible standards, including those related to environmental, social and governance factors, which requires significant up-front effort. Changes across geopolitics may heighten exposure to regulatory uncertainty and upheaval.
The path to mitigating these risks lies in the internal and external investments to acquire the skills and expertise needed to tackle these challenges, reduce future problems and minimise costs and complications. Executives, employees and suppliers must align to protect companies and prevent the leaks that technology and digitalisation, as a double-edged sword, can cause.
Reprinted with permission from El Economista
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January 22, 2025
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