Corporate Technologies and the Tech Nirvana Fallacy

65 Pages Posted: 31 May 2019 Last revised: 5 Jul 2019

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: June 25, 2019

Abstract

This article analyzes the impact of technology, in particular distributed ledgers/blockchains, smart contracts, Big Data analytics and AI/machine learning (collectively referred to as “Corporate Technologies”, or “CorpTech”) on the future of corporate boards.

We take on a prediction often found in the finance, law and tech literature, namely that technology will solve corporate governance problems and even replace the board of directors. We argue that such claim is based on what we call the Tech Nirvana Fallacy, the tendency of comparing supposedly perfect machines with failure-prone humans. In addition, it fails to consider that CorpTech’s impact, while significant, will merely scratch the surface of the perennial problem of corporate governance, namely conflicts of interest among the relevant corporate stakeholders, and chiefly between controllers (managers or controlling shareholders) and shareholders: even where algorithms are well programmed and effectively replace human judgment, intra-corporate conflicts of interest do not vanish in a tech-dominated corporate environment, where the key question becomes: “is the human being that selects or controls the firm’s CorpTech conflicted?”

This article analyzes the tech manifestation of agency problems within corporations and identifies – after considering possible market, governance, and regulatory solutions – elements of a governance framework for the CorpTech age.

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 (June 25, 2019). European Corporate Governance Institute (ECGI) - Law Working Paper No. 457/2019. 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 ECARES ULB CP 114
B-1050 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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