Entering the age of communities
For the first time in economic history, we are witnessing the convergence of:
1/ a technology for distributing capital, income, and membership rights,
2/ principles of shared governance and agility inherited from sociocracy, scrum, and lean startup,
3/ a post-covidian awareness of the meaning of work and the feasibility of new ways of working previously considered impossible.
Smart Contracts and Blockchain have given rise to DAOs (“Decentralized Autonomous Organizations”). Together with the principles of shared governance, this could turn the existing business model on its head at great speed and renew capitalism from the ground up.
During my interventions in “traditional” enterprises to share the cases of next generation enterprises with whom I have been interacting almost daily for more than 3 years, I schematically receive two types of feedback.
On the one hand, managers and employees who see the huge gap between what I describe and what they experience and practice, and conclude that they will either never make it or that their organization is doomed in the long run. I explain to them that awareness is the first step along the way, and that the process of adoption will allow them to gain confidence and gradually reap the benefits of the re-engagement and operational efficiency brought about by this new collective dynamic in the workplace.
On the other hand, there are those who “know it all already” and do not see what is “new”. I worry more about the latter, especially when it comes to large groups.
Of the nearly 250 best practices listed in the “Next Generation Enterprises”, I can only highlight a few examples as I introduce the topic. Of those who grumpily tell me they have heard it all before, how many have really implemented the principles of autonomy and accountability for roles, domains and responsibilities of the organization, how many have really driven transparency of information everywhere and on all topics, how many have managed to make autocratic decision making the exception and generalize collective processes like consent, how many have really declined their purpose in strategic goals and key outcomes by ensuring the involvement of almost all resources of the organization? I could go on and on about agile rituals, the culture of feedback, continuous improvement, the end of job descriptions, and archaic individual interviews.
While the principles of the Next Generation Enterprise are gradually beginning to permeate mainstream literature and press – and that’s good news – day-to-day behavior is still changing only slightly and often not profoundly.
But the COVID pandemic has made irreversible the paradigm shift that the faint signals of Next Generation Enterprises have been heralding for several years. This ground swell will not stop and the majority of people are now ready to embrace and accelerate it. Massive and generalized telecommuting was not possible, autonomy necessarily risky for the enterprise, management by trust a chimera of beatniks or Buddhist gurus, decentralization of authority and responsibility, an assured chaos, the possibility of loving people sincerely, a lack of professionalism, etc.
The intellectual dams are broken, that much is certain. It remains to seek refuge in organizations that are sincere in both their statements and their practices.
But aside from some startups and other companies that have decided to adopt methods and governance that meet the growing expectations of the “ultra-fluid” talent market – The National Institute of Statistics and Economic Studies (INSEE) describes an absence of unemployment beyond the 2-year college degree – at what pace will traditional enterprises be able to transform themselves?
Given the gap between the aspirations of the labor market and the offer of enterprises, the question arises: How to make a massive shift to next generation organizations or enterprises?
A recent interview with Joost Schouten and earlier conversations with Tom Thomison shed light on a possible way forward. According to Joost, it is unlikely that existing enterprises will choose to transition to the DAO model of decentralized, autonomous organizations. On the other hand, there seem to be countless new organizations that want to work differently. I am intentionally switching from the term “enterprise” to “organization”. The emergence of communities that spontaneously come together all over the world, thanks to the ubiquity of the Internet, is tremendous. These groups have a shared commitment, an affinity, a purpose, and a desire to use that purpose to change the real world at an unprecedented rate. They want to activate diversity, and they want to do it in a positive and equitable way. And this movement, for the first time in human history, has a real chance to become a tsunami and sweep everything along with it. From a few thousand communities today, it could well herald the beginning of an exponential movement.
Crypto investors and their billions are no longer interested in traditional organizations. Their philosophical convictions, their ethics, lead them to want out of the hierarchical relationship of subordinating people, creating wealth at almost zero marginal cost to a handful of shareholders. However, the big challenge for DAOs is to deliver on their inherent promise of decentralization! To do so, they must rely on a reliable governance and authority structure. “If nothing is explicit,” says Joost Schouten, “then it is implicit, the place is given to those who speak the loudest, and it is the balance of power”. He continues, “the DAO model will be the vehicle that perpetuates the concentration of wealth among a few large shareholders, or the one that delivers on the promise of decentralization”.
It seems to him that it is crucial to move away from implicit interpersonal hierarchies in order to achieve a true decentralization of authority. The operational capacity of DAOs often seems hampered by governance rules and the fluidity of their implementation. At the heart of these communities, Joost insists on the need to clarify certain boundaries: who is a member of the community and who is a member of a project with a specific goal or mission within that same community?
Although diverse, today’s DAO formats share common foundations. Joost identifies four important ones:
Of course, this is not enough to define an organization, let alone make it work in everyday life. Joost confirms that the DAO says nothing about culture, strategy and prioritization, onboarding, operational decisions, conflict resolution, or feedback.
Moreover, the collective decision-making mechanism of a DAO, voting, is a primitive and clumsy tool in day-to-day operations. While a collective vote can be useful in providing perspective or making a strategic decision about allocating assets or removing an abusive member, for everything else it is better to apply the right level of subsidiarity and trust the responsible roles to make an autonomous and transparent decision. These same levels of subsidiarity often use the consent decision process to combine speed, collective process, and individual proactivity to improve the functioning of the community or organization.
A DAO eliminates the traditional shareholder format, the board of directors, the executive committee and the managers in terms of the hierarchy of subordination in the same movement. However, we are still in the infancy of DAOs and many still confuse their capital token with their governance token. In doing so, they are recreating a potential abuse of power by shareholders.
Joost Schouten, like Tom Thomison, believes that it is important to enrich the “Smart Contracts” encoded in the Blockchain of a DAO with information about collaboration outside the Blockchain. For example, the Smart Contracts might describe a role or a project.
A DAO is an elegant way to scale what Encode, the initiative of Tom Thomison and his collaborators, has been doing for years, defining the rules for managing and distributing capital, ownership, compensation, and community participation.
Yet, when it comes to the clarity of governance, to the day-to-day operations, the majority vote of DAOs is only mediocre, even counterproductive.
The decentralized organization model, also known as shared governance, has gained popularity in recent years, driven by agile methodologies and rituals. Organic, sociocratic, teal or holacracy governance models can consolidate, Joost says, a DAO on the criteria that today constitute its weakness:
Today, many DAOs appear to be in operational trouble because decision making has slowed significantly or because they are implicitly or explicitly reverting to a traditional hierarchical format.
“In the crypto and DAO movement, there is a strong movement against any kind of governance, even if it is shared!” notes Joost. “But if you remove any authority, governance or hierarchy, you remove the clarity that is vital to any organization, let alone a complex one”. Joost continues, “in my opinion, authority is neutral.”
The DAO concept was first introduced in 2015 by BitShares founder Dan Larimer and developed by Ethereum creator Vitalik Buterin. In April 2021, at the behest of Wyoming Governor Mark Gordon and the famous Bill 38, which went into effect on July 1, 2021, it became possible to form a DAO limited liability company (LLC), a decentralized autonomous organization. Like LLCs or SARLs in the U.S. legal framework, DAOs must include a designation in their name, such as “DAO”, “DAO LLC” or “LAO”.
To establish the equivalent of a DAO LLC in a jurisdiction other than Wyoming, the work of Encode – particularly Tom Thomison – allows the definition of bylaws compatible with key European and U.S. laws, using the DAO technological vehicle in particular to manage capital investment, ownership and compensation.
Could this be the beginning of the end of traditional corporate or association models? Are we on the verge of the emergence of diverse and potentially vast communities? Their spontaneous emergence on the Blockchain or in the political sphere via social networks is disrupting existing institutions, but their woeful lack of governance and structure is now a limiting factor to their successes.
This is where the long-standing work of shared governance frameworks that describe the decentralization of authority, agile working methods, and collective and efficient decision-making can find unprecedented leverage to scale.
Of course, this is unlikely to be a mutation of the existing economy, but the emergence of a new generation of organizations that are hopefully more humane, equitable, and focused on the issues our world really needs to solve.
Author: Luc Bretones, CEO at NextGen