Technology and Corporate Governance: Blockchain, Crypto, and Artificial Intelligence

Research Retrieved: December 2018
Retrieve the paper from ECGI

Issue

Technological advancements are rapidly changing everyday life – will they also change corporate governance? In this paper, Fenwick and Vermeulen (2018) discuss major technology trends and outline why these developments could require firms and investors to rethink corporate governance.

Key Findings

  1. Amplification effects create uncertainty: New technologies such as blockchain, artificial intelligence, robotics and remote sensing would altogether be sufficient to challenge businesses and decision makers. However, the authors emphasize that particularly the interaction and mutual acceleration of these different dynamics generates previously unknown levels of uncertainty. This condition poses new challenges to the conduct of business in general, and the governance of large corporations in particular.
  2. Decentralization disrupts hierarchies: Decentralization changes the meaning of hierarchies both within and beyond organizations – and resonates with many people. For instance, some of the most innovative firms promote the best- idea-wins-approach as an organizational strategy, and technology empowers customers to influence firm behaviour. These new dynamics could question the core of traditionally centralized governance structures.
  3. Limits to retrofitting: Updating old, organizational systems with new, digital technology can be problematic if transformation becomes disruptive. Moreover, the management and risks of comprehensive technology transformations are largely unexplored – posing a challenge to the organizational decision makers.
  4. Communal decision making rises: New technologies enable authorative decisions without the existence of a formal leader, foreshadowing a clash of technology-driven, communal decision making and traditional governance structures.

Meaning for Practice

The rapid and simultaneous development of new technologies makes it hard for firms and investors to anticipate if business will continue as usual, or if corporate governance will have to adapt substantially to new technological risks and opportunities. The authors provide valuable insights for investors by outlining why a business-as-usual scenario is unlikely, and why regulatory models will have to adapt in order to remain relevant.