Corporate governance: ruled by code not a CEO
Imagine an organisation that performs thousands of transactions, but has no governing structure, no board, no chief executive and no middle managers.
This is exactly what the research paper The DAO controversy: The case for a new species of corporate governance? addresses. Authored by Robbie Morrison, Dr Natasha Mazey and Associate Professor Stephen Wingreen, it was recently published in Frontiers in Blockchain and explores the implications of a non-human led governance structure, and the impact on a decentralised autonomous organisation following a ‘hack’ of its code.
In 2016 The DAO, a venture capital fund, was set up. It had no governing structure and wasn’t tied to any nation or its legal framework. It used the Ethereum Blockchain and traded in cryptocurrency. Community members agreed to its terms and had voting rights to jointly determine how funds would be invested and managed, all of which was controlled and executed by the smart contract.
Associate Professor Stephen Wingreen says, “It’s not new for companies to use Blockchain, essentially a decentralised distribution ledger, to perform transactions, but The DAO took it a step further and decided the entire corporate governance of the company would be done using Blockchain. In other words, no trusted authorities would be running the organisation.”
A member of The DAO community found and exploited a loophole in the smart code.