FEATURE
DAOs Can Revolutionize Corporate Governance By HEATHER MEEKER
E
ntrepreneurs are experimenting with a new form of organization called a DAO — a blockchain-based structure that draws upon the transparency of blockchain technology and the community participation of open source software development. Recent years have brought increasing focus on corporate responsibility and democratization of capital markets; and, on face, DAOs dovetail nicely with these goals. A decentralized autonomous organization (DAO) is an organization that is collectively owned by its members and governed by “smart contracts,” which are
14
simple rules implemented in a blockchain. Smart contracts are logic elements (computer programs) that take actions automatically when certain conditions are met. Think about a vending machine — you put in money, you get a snack. It’s not a legal contract in the conventional sense, but once you take the required action (put in money, choose your item), the transaction proceeds without human intervention. While traditional corporations are run via bylaws, voting agreements and board meetings, DAOs operate largely without human decision making. While corporate boards are usually small
TODAYSGENERALCOUNSEL.COM FEBRUARY/MARCH 202 2
elites, DAOs can be governed by many participants — possibly hundreds or even thousands. The policies and finances of a DAO can be verified via publicly visible transactional activity on a blockchain. DAOs replace the legal power of corporate bylaws with a “zero-trust” system that ensures transparency and makes it hard to break the rules. In other words, DAOs are bottom-up decision making, and corporations are top-down. There are other differences. Ownership of a DAO can change fluidly. Tokens representing voting rights in a DAO can be traded without centralized permission BACK TO CONTENTS
