Corporate Technologies and the Tech Nirvana Fallacy

Corporate Technologies and the Tech Nirvana Fallacy

Luca Enriques, Dirk Zetzsche

Series number :

Serial Number: 
457/2019

Date posted :

June 13 2019

Last revised :

July 03 2019
SSRN Share

Keywords

  • Algorithms • 
  • Artificial Intelligence • 
  • blockchain • 
  • board of directors • 
  • Compliance • 
  • Corporate governance • 
  • CorpTech • 
  • Distributed Ledgers • 
  • Regtech • 
  • risk management • 
  • smart contracts

This article analyzes the impact of technology, in particular distributed ledgers/ blockchains, smart contracts, Big Data analytics and AI/machine learning (collectively referred to as “Corporate Technologies”, or “CorpTech”) on the future of corporate boards.

We take on a prediction often found in the finance, law and tech literature, namely that technology will solve corporate governance problems and even replace the board of directors. We argue that such claim is based on what we call the Tech Nirvana Fallacy, the tendency of comparing supposedly perfect machines with failure-prone humans. In addition, it fails to consider that CorpTech’s impact, while significant, will merely scratch the surface of the perennial problem of corporate governance, namely conflicts of interest among the relevant corporate stakeholders, and chiefly between controllers (managers or controlling shareholders) and shareholders: even where algorithms are well programmed and effectively replace human judgment, intra-corporate conflicts of interest do not vanish in a tech-dominated corporate environment, where the key question becomes: “is the human being that selects or controls the firm’s CorpTech conflicted?” This article analyzes the tech manifestation of agency problems within corporations and identifies – after considering possible market, governance, and regulatory solutions – elements of a governance framework for the CorpTech age.

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