Reinvention is the name of the game. From the wheel to the internet, humanity has evolved on several fronts and across centuries to reach where we are today. Similarly, at the moment, there is a paradigm shift transpiring right under our noses. And this very reinvention is potent enough to disrupt all things business.
Business management has been on the chopping block for a while now as corporates and private entities are profiting from every vulnerability in society. Lack of resources, inequality and even a pandemic is viewed as an opportunity to mint money.
The Grim Status Quo of Business Management
While making money is not the problem in itself, the question is, where the line is drawn and by whom? These questions are merely manifestations of the good-old ‘problem of choice.’ However, answers for these are driven by several factors.
Management is in turmoil as teams stand accountable for the protection of both the firms’ interests and the owners’ interests. There’s moreover a principal-agent muddle. They are barely incentivized in relation to the rise in stock prices, which is often the owners’ only concern. Here, the management and the owners are at crossroads with each other and this creates loyalty concerns.
Moreover, the rationale behind these concerns is simple: decision-making is exclusive. Employees barely have a say in the managerial efforts. And with time, they detach themselves from the company and their relationship stands on one thing—remuneration.
Fair to say, exclusivity and hierarchy have demoralized more talent than any other factor.
DAOs Lead the Way in Revisiting Democracy in Businesses
Rampant exclusivity in the corporate landscape has given rise to a democratic solution in DAOs or Decentralized Autonomous Organizations.
The shifting of trust from top management to algorithms or smart contracts is enabling decisions to be driven by consensus, rather than a set of few people at the top level of management. Furthermore, transparency is assured by blockchain and its immutable nature. The use of smart contracts and predetermined inputs to automate business decisions reduces friction and endorses a community-first approach.
In a form of deliberative democracy, these new organizational setups are redefining work relationships. The entry barriers of DAOs can be designed keeping in mind the diversity of people, incentives and dynamic work relationships. The key advantage of DAOs is the easier exit points for people involved. Ragequits are thus growing in popularity simultaneously.
Working at one’s will. Getting paid by the job. Network participants and not employees. All these are going to be the norm with DAOs turning mainstream. Ownerless businesses with inherent DAO-styled governance are perceived as the future.
Stakeholder and investor management is eased out with these setups as the decision-making process is open to all. Decentralized voting brings everyone on the same playing field. Thereby, the business’ interests are prioritized while aligning with the members’ commitment unlike in traditional ways where business goals were taken independent of employees’ voices and then compelled to accept and work for.
The Raw Truth of Ownerless Businesses
Ownerless businesses face certain unique concerns that might end up questioning if the solutions are being built for a non-existent problem.
‘Too early to the market’ is a conundrum that DAO-styled governance is facing. It can be with regards to DAO tooling and/or user education and awareness. Also, the scalability aspect of ownerless businesses is a head-scratcher. Doing away with intermediaries and top management is understandable.
However, the removal of hierarchy poses an organizational crisis as the feedback loop grows and each network participant needs to be present while making a decision. Representative democracy can be used but the specifics need to be polished, if not, it is no better than a regular corporate hierarchy.
Moreover, the formation of ownerless businesses seems implausible in the current regulatory turmoil. With geographical inconsistencies, DAO-styled governance is a headache for authorities with regard to taxation and other regulatory compliance.
Running an ownerless business while the macro-factors are nothing but a load of gray areas is a ticking bomb. Similarly, the success of a DAO depends on the participants which is again a variable. For example, delaying vital security upgrades in a bid to achieve majority consensus is a threat.
Future of DAOs: Solving or Repackaging the Problem?
The potential of DAOs is unparalleled and moving forward, more businesses will adopt this organizational structure. However, the feasibility of an ownerless business shall breed newer problems which in turn might be ridiculed if the shift to DAO-styled governance only aggravated the prior concerns.
With better tooling for DAO management and smart contract deployment, the vision of ownerless businesses can be realized. The future boardrooms shall exist on the likes of Ethereum and Polygon blockchains, while deliberative democracy shall be the basis of decision-making.
The fluidity, perpetuity and resilience of a DAO can never be matched by any corporate. So, a new level of efficiency with clear demarcation of capital and governance awaits us all in the near future.
About the author:
Hatu Sheikh is a Co-Founder of DAO Maker, building the future of venture capital.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.