Business & Liability Research Network
Future business structures
In recent years, digital technologies have begun to affect the boundaries and governance of business organizations. The use of online platforms, blockchain technology and artificial intelligence not only enable the sale of goods and services, they also challenge widely-accepted norms of company law and raise novel doctrinal and practical questions of their own. Online platform companies that are ‘born global’, deploy internet technology, have dual-/multi-class share structures and make extensive use of outsourced, self-employed labour, diverge significantly from the traditional (capital) corporation, the creation of which many company law rules were designed to facilitate.
While trust in institutions and individuals have been critical for building commercial ties between strangers over centuries, the development of blockchain technology since the 2008 financial crisis has created new possibilities for establishing such ties using technological means, without reposing trust in particular organizations or individuals. From a company law perspective, the organization of consensus protocols and the creation of unincorporated organizations built on consensus protocols (e.g. decentralised (autonomous) organisations), fits uneasily within existing business entity forms and problematizes the relationships of trust within business organizations. Without the benefit of publicity – of corporate form and of individuals involved – it becomes unclear which law applies to such organisations, including the relevant rules of liability if the organisation malfunctions. At the same time, this begs the question whether existing business structures have to be re-imagined in light of these technological changes and evolving societal expectations.
The growing use, and increasing sophistication of, artificial intelligence (AI) systems takes these developments a step further, as it enables human beings to gradually cede decision-making authority to AI systems and represent humans in performing certain actions. This not only raises the financial and ethical stakes of trusting technology, it generates uncertainty as to the attribution of liability and the binding nature of these representative acts when something goes wrong.
The researchers involved in this area investigate the impact these technological advances are having on the operation and governance of business organizations, using a variety of interdisciplinary approaches drawing from law & technology scholarship and business studies (among others). This informs the (legal) recommendations they make on how business and liability law may best address these advances.
One of the most significant applications of blockchain technology has been the creation of ‘smart contracts’. They are paradigm-shifting for the formation, enforcement and execution of contracts. This is because their clauses are written in code on a blockchain that is immutable and less susceptible to ambiguity, they are recorded across globally-distributed network nodes rather than being concentrated in a single server or a document and they dispense with trusted third parties (e.g. courts) by enabling transactions (e.g. transfer of money, opening a door) to be automatically self-executed if certain conditions or obligations are met. It is also revolutionary in its expansion of potential counter-parties, from mediating the interaction between human beings to including machine-to-machine and human-to-machine transactions. However, the potential of smart contracts is not limited to washing machines automatically ordering detergent when running low or hotel doors locking and unlocking depending on whether its inhabitant has paid the daily room-rate. Smart contracts can be programmed to execute a series of complex transactions upon the fulfillment of certain conditions or the occurrence of certain events, thereby emulating the functioning of organizations. While still in its formative years, the decentralized business organizations that have appeared till date share some common features. Firstly, as with many start-ups, they identify a problem or a gap that needs to be addressed and posit a ‘solution’ that utilizes blockchain technology and applications built on top of it to coordinate concerned stakeholders and execute transactions. Decentralized investment vehicles like The DAO were formed to provide a crypto alternative to conventional venture financing and to bypass the high commissions of crowdfunding platforms. Others, like the developers of Colony, seek to create workplaces that embody and operationalize non-hierarchical management by using smart contracts to distribute business ownership according to individual contributions rather than solely prioritize capital contributions. Secondly, to accumulate capital and meet the initial capital and labour costs when financing options are limited, many decentralized organizations issue ‘tokens’ to contributors of work and cryptocurrency that variously confer governance rights and, once the token gains wider acceptance, financial rights in the organization. (They, however, differ in the consensus protocols used to determine allocation of said rights.) Thirdly, they often blur the boundaries between the stakeholder groups of a corporation, with an individual filling the role of an investor, worker and manager, either simultaneously or over the course of the organization’s lifetime. While management functions can be widely distributed in such organizations, it is conceivable that as artificial intelligence become increasingly sophisticated, several of these functions can be taken over by algorithms, thereby allowing the entity to be truly autonomous.
For corporate lawyers and economists, the evolution of businesses on the blockchain raises fundamental questions as to how they should be governed, the legal form that attaches to them by default and the congruence of such forms with the business’s objectives. With this in mind, we ask: What is distinctive about distributed blockchain governance? What legal forms should be adopted by decentralized organizations? Conversely, should the law amend or provide new legal forms to optimally arrange the rights and obligations of decentralized (autonomous) organizations? These are the overarching research questions of this project. Given the exploratory nature of this research, these questions will be approached through a combination of literature reviews, legislative analysis and the close study of a purposive sample of decentralized autonomous organizations.
As AI systems increasingly interact with society, a number of fundamental (legal) questions arise: whether AI-systems can perform legal acts, such as the conclusion of valid and binding contracts, for itself or for a principal (a person who grants power to represent to the AI system) under Dutch or EU law, whether legal forms with legal personality such as corporations and foundations can be used for this purpose and whether it would be desirable to grant certain rights and obligations (legal subjectivity) to AI systems.
All of these questions are relevant for identifying legal relationships and are necessary for addressing the liability issues that arise as a consequence of AI’s interaction with society. This includes issues as to the attribution of liability as well as its effective enforcement. By answering them, it becomes possible to provide proper and just responses to these technological developments, which will balance the need to foster innovation with ensuring a fair and reliable legal system.
The research required to approach such far-reaching questions is, by necessity, multidisciplinary. For instance, to analyse, evaluate and comment on an appropriate legal framework for AI systems, whether geared towards autonomous AI systems or the use of AI systems as boardroom ‘tools’, it is necessary to have a deeper knowledge of how AI systems affect the decision-making of human users and collaborators who interact with them. Exploring normative questions on whether it is desirable to confer legal capacity and regulation to an AI system necessitates research from technological, psychological, ethical and legal perspectives. Hence, collaboration with computer scientists specialised in artificial intelligence, (social and organisational) psychologists and experts in ethics is imperative.