- By Lu Ying
Future of Corporate Governance Through Blockchain-powered Smart Companies
Sitting in the same room of thousands of entrepreneurs and business owners across the world
over the past few days, one persisting topic that kept popping up is our ability to adapt to digital
disruption. In the era when everything seems to be ripe enough for disruption left and right,
existing businesses are righteously concerned about the never-ending quest for ‘what next?’ and
more importantly, ‘how?’
Robotics, AI, coming age of this and that. But one of the underlying aspects I rarely find
entrepreneurs discuss is the structure on how their businesses are built upon to make these
advancements happen. The foundational pillars on which your castle is built upon, the rules for
the game you’re playing and legal frame within which your teams makes the most complex
decisions in: corporate governance, none else.
Corporate Governance Today
Regardless of the size, industry and model of your business, corporate governance determines
your ability to move. It is the system comprising rules, policies and processes to direct and
control your organization. One of the most important roles it plays is aligning its stakeholders
such as shareholders, owners, financiers and the regulators, just to mention a few. Essentially,
corporate governance provides the framework for reaching company’s projections and
practically covers every sphere of company management.
Manual paperwork and bureaucracy, the infamous characteristics of corporate governance,
means your key decision making process is exactly that. Lengthy and heavy processes means
that’s where you, or your hired workforce, will spend their mindspace on. Intuitively, you’d think
there must be more innovation in the space - but there really isn’t that much. And so this is
where alternative solutions come in.
Blockchain in corporate governance
An established school of studies has been conducted over the past decade in an attempt to
understand board performance better. Research shows that the main reasons behind board
failures is ‘invisible barriers’ such as meeting infrequency, miscommunication and misalignment
and conflict of interests. Many of these are directly linked to misinterpretation and lack of trust.
Most of which can be directly solved through blockchain technology and specifically, Smart
Company model.
I will go more into detail about Smart Companies further down this text but to understand why
blockchain has tremendous potential in the space of corporate governance lies in its ability to
govern transactions without trust.
The ability to execute transfers automated through smart contracts may just be the key
component solving many longstanding problems related to misalignment of the board of
directors. Blockchain’s DNA features lowering the costs of operation, unlocking greater liquidity,
more accurate record-keeping and transparency of ownership are not to be undermined. As
Harvard Law argues, these characteristics “have the potential to change corporate governance
as much as any event since the 1933 and 1934 securities acts in the United States”.
Regulated Blockchain
It is no surprise that decision makers from jurisdictions to stock exchanges are exploring the
use of blockchains to apply to their own models. In this light, although blockchain has been
criticized for not being useful in any real-world implications yet, I must say in the world of
corporate governance it proves out to be different.
I had the privilege to listen to Pascal Finette from Singularity University talk about emerging
technologies the past weekend and couldn’t agree more with his view: a technology may meet
all the market conditions of being the perfect solution for solving xyz, but as long as there is no
regulation around it, nothing real will happen.
And so has been the case with blockchain. With no regulations, the bridge between the tech and
real-world applications are just that far away. Therefore, ventures looking to make practical use
of their emerging technology need to be mindful of this. And this brings me to Korporatio’s
Smart Company model, a legal blockchain-powered entity.
Smart Companies Paving The Way
In essence, Smart Company is an entirely new form of business type (LTD., IBC) except it rivals
all traditional models by being fully automated by blockchain.
And certainly, it makes just that big of a difference. When you have the ability to run your
business in a structure that is legally compliant yet all its transactions happen in real-time and
are verified directly on the blockchain, this changes the game.
What this means for business owners is that managerial ownership structures become more
transparent. Corporate voting is easier, more accurate and secret strategies such as ‘empty
voting’ become more difficult to execute. The ability to have corporate shares as ERC-20 tokens
modified for security laws offers the means to assert and transfer ownership and liabilities of
real-world assets with actual value. Just to give you a rough understanding of the magnitude of
this untapped potential, it has been estimated that the total value of illiquid assets, including
real estate, gold., is no less than $11 Trillion . Roughly the nominal GDP of China, the world’s
second largest economy today.
For shareholders, Smart Company model offers nearly free trading and transparency in
ownership records while simultaneously showing real-time transfers of shares from one owner
to another. Taking this further, if Smart Companies chose to keep their financial records on the
blockchain, this unprecedented transparency would allow investors to identify ownership
positions of debt and equity investors and maybe even overcome corruption on the part of
regulators and exchanges.
But what about smaller enterprises these implications may not apply to?
Regardless of the size, type or life cycle of the business, one of the more powerful aspects of
this model is that it allows stakeholders to access current and accurate information at any given
time. An example I’d like to draw attention to is the outdated Annual General Meeting (AMG) of
Shareholders. While it still plays an important theoretical role in the agency world, in practice
this meeting is often considered a rigid, mandatory ritual, which remained unchanged for
centuries.
Ethereum-powered Smart Companies have the ability to remove the ritual of AMGs by creating
trust and transparency through its technology. For instance, in Korporatio’s Dashboard version
2.0, Smart Companies can directly present proposals, and shareholders can exercise their
voting rights. As voting results become instantly available after the cut-off, the majority
requirement is determined automatically coded in the governing body of smart contracts. After
this, the result of the vote has immediate legal liability as soon as the blocks on the chain move.
Realizing what a complex set of processes this simple solution is able to stack up and
streamline in seconds brings this whole topic into a new level. And since all of this can be
virtually managed through a click of a button from a single laptop, Smart Companies are paving
their way into minimizing the noise of outdated corporate governance and drastically simplifying
the process of decision-making.
Smart Companies and Jurisdictions
A variety of governmental agencies and international bodies have shown interest in regulating
blockchain-related activities, but so far, there is no global consensus on governing this emerging
technology yet. Many countries are under negotiations and starting to pilot more relaxed
regulations for blockchain-based companies. Against this backdrop, Korporatio’s journey to
open and successfully deploy jurisdictions on its own has been nothing short of
groundbreaking.
Speaking from a technical aspect, Korporatio already has the tech architecture designed to be
automated on the blockchain and therefore the model is fully scalable. Although it is notable to
mention that each new jurisdiction would require minor changes in the technology to be
deployed and therefore the Smart Company model may slightly differ per country in order to fit
the legal framework.
Notably, the first Smart Company model started from the Seychelles. In just one short year,
we’ve expanded to five more jurisdictions, with the latest being Wyoming, United States and
Singapore.
In for the Long Play
Thinking a bit further down the road, blockchain as technology will fade into the background as
user experience will lead the way into mass market adoption. With decentralized web or ‘web
3.0’ in the eyes of blockchain enthusiasts today, it is not hard to connect the dots in an economy
where digital entities are controlled directly by their owner via blockchain in the so-called
non-state-backed formality.
Not so far in the future, all business executions have the potential to run on codes. With
automated dividends, stock options, bonuses and self-executive accounting, corporate
governance will be converted into a digital ecosystem where transparency, immutability,
accuracy and security will be defined as basic currency.
Creation of new processes will be streamlined through shared Application Programming
Interfaces (API’s) across sectors and transactions sent out in digital currencies will be
automatically converted into fiat currencies. Reaching decentralized consensus, conventional
ownership models will be shaken up radically, just like today’s corporate governance.
And this is where Korporatio visions itself in the long-term: pioneering as an enabler for the next
generation of entrepreneurs to create and innovate hassle-free, in a system that leverages every
aspect of the blockchain technology. Invented by entrepreneurs to entrepreneurs. So that you,
as an entrepreneur, can focus on what really matters.
Lu Ying is the Chief Operating Officer of Korporatio. Lu has a diverse background from business strategy to C-level execution and startups to Fortune 2000s and intergovernmental organizations. Wildly curious about human behavior, macro trends and future, Lu explores systems shifts in the space of circular economy and decentralized models through blockchain governance. Interdisciplinary and nonlinear, Lu is also a World Economic Forum Global Shaper and sits on the Board of Entrepreneurs Organization Shanghai.