Technology and Corporate Governance: Blockchain, Crypto, and Artificial Intelligence
Much of our world is now built on the zeros and ones of computer code. “Code” forms the invisible architecture structuring many aspects of our everyday lives. Driving this “Digital Transformation” is an interconnected series of technological innovations that have re-shaped social, economic and cultural life over recent decades. Consider the impact of (i) cheaper, smaller and more powerful digital hardware; (ii) global communication networks and mass connectivity; and (iii) Cloud-based storage of massive amounts of information (“Big Data”) & automated algorithms that process that data. Moreover, multiple emerging innovations in the fields of robotics, Artificial Intelligence, machine learning, nanotechnologies and distributed ledgers (Blockchain) will undoubtedly bring further waves of disruption.
A considerable amount of interest surrounds these technologies, particularly in a business context. Such technologies create multiple new business opportunities and have enormous implications for how businesses operate and organize themselves. Nevertheless, a great deal of uncertainty and anxiety also surrounds these issues. Everyone is aware that something important is happening, but there is much less agreement on what the Digital Transformation means for the future of business.
Similarly, a great deal of uncertainty surrounds the continued relevance of existing regulatory frameworks and the vital task of identifying appropriate rules and regulations. Corporate governance, in particular, is a crucial site for such regulatory discussion and debate. Again, there is a lot of interest in emerging technologies. But, what seems equally clear, is that the various stakeholders in the corporate governance space are moving at different speeds and in different directions.
Our new paper explores the suggestion that existing models of corporate governance will need to be re-examined in light of the profound disruption to business caused by emerging technologies. We highlight four connected issues that seem particularly relevant to any discussion on the impact of new technology on corporate governance and business regulation, more generally.
First, contemporary technological change – the on-going digital transformation – is characterized by “amplification effects” as multiple technologies “accelerate” each other. Whereas previous technological revolutions were sequential (new technology following new technology), the “Digital Revolution” involves multiple simultaneous technological developments that impact each other in unexpected and essential ways. The resulting exponential growth of new technologies makes it increasingly difficult for regulators to keep pace with the speed of technological and economic developments. Traditional “reactive” approaches to law-making seem ill-suited to the new world.
Second, these technological changes are disrupting the “old corporate world” of centralized authorities, hierarchical organizations, and “proper” procedures and processes. How businesses organize themselves is changing, as a result of technology. Crucially, the emerging “new world” is characterized by the “decentralization” and “disintermediation” of business organizations as traditional hierarchical organizational forms are disrupted. Since existing regulatory models have been designed to maintain the interests of those at the top of the hierarchy, it remains unclear whether they will still be relevant in the emerging new world.
Third, “retrofitting” – simply adding digital solutions to older systems or models in the belief that this will "future proof" an organization – may work in some contexts but needs to be treated with caution, particularly when looking for medium- to long-term solutions. More radical approaches are often required, most obviously when new technology is genuinely disruptive of existing ways of thinking and working. The risk for regulators is that retrofitting – simply adding new regulations on top of existing frameworks – creates the risk of confusion or (even worse) an unhealthy disconnect between the business needs of firms and regulatory requirements.
Finally, new technologies facilitate more dispersed forms of business organization – what we call “community-driven corporate organization and governance.” In particular, systems of organizational governance are being developed in which decisions are reached by a community of users in the absence of a centrally designated authority that makes and enforces those decisions. Again, in such circumstances it is prudent for regulators to embrace more creative and experimental regulatory approaches rather than persist with existing hierarchical forms.
Our conclusion? A combination of technological and business developments means that existing regulatory models need to adapt to remain practical and relevant. In particular, more dynamic and responsive regulatory forms need to be developed that are sensitive and responsive to this fast-changing environment.
After all, the risk for regulators and other policymakers is that by failing to act, other more “creative” jurisdictions will gain a competitive advantage in attracting the best new businesses and the most creative “talent.”