Corporate Technologies and the Tech Nirvana Fallacy

57 Pages Posted: 31 May 2019 Last revised: 2 Apr 2020

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC)

Date Written: March 25, 2020

Abstract

This article introduces the term Corporate Technologies (“CorpTech”) to refer to the use of distributed ledgers, smart contracts, Big Data analytics, AI and machine learning in the corporate context and analyzes the impact of CorpTech on the future of corporate boards. We focus on the tech manifestation of agency problems within corporations and identify—after considering possible market, governance, and regulatory solutions—elements of a governance framework for the CorpTech age.

In particular, we take on a prediction often found in the literature, namely that CorpTech has the potential to solve all corporate governance problems for good and make boards of directors redundant. We argue that this claim is based on what we call the tech nirvana fallacy, the tendency of comparing supposedly perfect machines with failure-prone humans. The inherent features of technology and corporate governance reveal that even well-programmed CorpTech leaves the core issue of corporate governance—conflicts of interest among the relevant corporate stakeholders—untouched. In the Corptech age, the key question becomes: “is the human being that selects or controls the firm’s tech conflicted?” If so, CorpTech itself will be tainted. In fact, the problems arising from the transition to a CorpTech-dominated governance environment may, in the short-term, make things even worse: insufficient understanding of the promise and perils of CorpTech and over-confidence therein may even aggravate agency problems within firms.

Keywords: Algorithms, Artificial Intelligence, Blockchain, Board of Directors, Compliance, Corporate Governance, CorpTech, Distributed Ledgers, RegTech, Risk Management, Smart Contracts

JEL Classification: D23, G38, K22, L22, M15, O16

Suggested Citation

Enriques, Luca and Zetzsche, Dirk Andreas, Corporate Technologies and the Tech Nirvana Fallacy (March 25, 2020). European Corporate Governance Institute (ECGI) - Law Working Paper No. 457/2019; Hastings Law Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3392321 or http://dx.doi.org/10.2139/ssrn.3392321

Luca Enriques

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC) ( email )

Universitaetsstr. 1
D-40225 Düsseldorf
Germany
+49 211 81 15084 (Phone)
+49 211 81 11427 (Fax)

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