Blockchain Economy Corporate Governance and the Law as Code€¦ · Blockchain Economy –...
Transcript of Blockchain Economy Corporate Governance and the Law as Code€¦ · Blockchain Economy –...
Blockchain Economy –
Corporate Governance and the Law as Code
Charles K. Whitehead
Agency Costs
Principal Agent
Asy
mm
etric
Info
rmatio
n
Self Interest Self Interest
Hires
Performs
An organization is a nexus of contracts,
explicit and implicit
The design of an organization addresses
the same common problems
Different incentives and uncertainty –
what will each party do?
Information and its distribution
Agency costs
Agency Costs
Shareholders vs. managers
Risk capital
Invested by shareholders who manage through
diversification, the purchase and sale of shares
Managed by the board and senior managers, who
can fall back on a “catch all” cushion to offset
losses
Agency costs
Diversified
Shareholders
Managers
Costs
Agency Costs
Shareholders vs. managers
Risk capital
Invested by shareholders who manage through
diversification, the purchase and sale of shares
Managed by the board and senior managers, who
can fall back on a “catch all” cushion to offset
losses
Agency costs
• Area Rug $87,784
• Mahogany Pedestal Table $25,713
• 19th Century Credenza $68,179
• Pendant Light Furniture $19,751
• 4 Pairs of Curtains $28,091
• Pair of Guest Chairs $87,784
• George IV Chair $18,468
• 6 Wall Sconces $2,741
• Parchment Waste Can $1,405
• Roman Shade Fabric $10,967
• Roman Shades $7,315
• Coffee Table $5,852
• Commode on Legs $35,115
Agency Costs
Majority vs. minority shareholder(s)
Benefits of control – to what extent can a
majority shareholder disproportionately benefit?
Agency costs
Majority
Shareholder(s)
Managers
Costs
Minority
Shareholder(s)
Shareholders/managers vs. creditors
Capital invested by creditors who (increasingly)
manage through diversification
Managed by the board and senior managers
Agency costs
Diversified
Shareholders
Managers
Costs
Creditors
Agency Costs
• Much of corporate law/corporate governance aims to reduce agency costs, e.g.:
• Voting rights and fiduciary duties
• Disclosure requirements (federal and state)
• Covenants and monitoring (for creditors)
Agency Costs
Mind the Gap
• Companies that transact on a blockchain can, at relatively low cost, bridge the informational gap between
directors/managers and shareholders, enhancing monitoring by shareholders and creditors.
Transparent real-time disclosure of transactions (but limiting access to competitive information); and real-time
income statement and balance sheet data.
Mind the Gap
• Companies that transact on a blockchain can, at relatively low cost, bridge the informational gap between
directors/managers and shareholders, enhancing monitoring by shareholders and creditors.
Transparent real-time disclosure of transactions (but limiting access to competitive information); and real-time
income statement and balance sheet data.
Mind the Gap
• Companies that transact on a blockchain can, at relatively low cost, bridge the informational gap between
directors/managers and shareholders, enhancing monitoring by shareholders and creditors.
Transparent real-time disclosure of transactions (but limiting access to competitive information); and real-time
income statement and balance sheet data.
Mind the Gap
• Companies that transact on a blockchain can, at relatively low cost, bridge the informational gap between
directors/managers and shareholders, enhancing monitoring by shareholders and creditors.
Transparent real-time disclosure of transactions (but limiting access to competitive information); and real-time
income statement and balance sheet data.
Diversified
Shareholders
Managers
Costs
– Weather
– F/X
– Oil Prices
Risk
Counterparties
Smart
Contracts
Pre-agreed arrangement to transfer risks to third parties who are
better able to manage those risks at lower cost.
Pricing and limits to be determined based on Risk Counterparties’
risk pricing systems.
Company can assess which Risk Counterparty will provide the
lowest cost before assuming or transferring new risk.
Smart
Contracts
“Rock the Vote”
• Permit companies to better identify their shareholders – for purposes of, e.g., voting and dividends.
The Depository Trust & Clearing Corporation
Custodian Custodian
Issuer
Broker
Owner
Broker
Owner
“Rock the Vote”
• Permit companies to better identify their shareholders – for purposes of, e.g., voting and dividends.
Issuer
Owner Owner
• Permit companies to better identify their shareholders – for purposes of, e.g., voting and dividends.
DGCL § 224 Form of records.
Any records administered by or on behalf of the corporation in the
regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or by means of, or be
in the form of, any information storage device, method, or 1 or
more electronic networks or databases (including 1 or more
distributed electronic networks or databases), . . .
“Rock the Vote”
• Much of corporate law/corporate governance aims to reduce agency costs, e.g.:
• Voting rights and fiduciary duties
• Disclosure requirements (federal and state)
• Covenants and monitoring (for creditors)
Agency Costs
• Much of corporate law/corporate governance aims to reduce agency costs, e.g.:
• Voting rights and fiduciary duties
• Disclosure requirements (federal and state)
• Covenants and monitoring (for creditors)
Agency Costs
• Much of corporate law/corporate governance aims to reduce agency costs, e.g.:
• Voting rights and fiduciary duties
• Disclosure requirements (federal and state)
• Covenants and monitoring (for creditors)
Agency Costs
Blockchain Economy –
Corporate Governance and the Law as Code
Charles K. Whitehead