Corporate Technologies and the Tech Nirvana Fallacy
57 Pages Posted: 31 May 2019 Last revised: 2 Apr 2020
Date Written: March 25, 2020
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
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