Rejecting Corporate Structure
TikTok and its poor imitation, Instagram Reels, are filled with the content of young millennials who recently entered the workforce demonstrating their apathy towards their corporate jobs: anecdotes serving as evidence of one of Anne Helen Petersen’s theses in Can’t Even: How Millennials Became the Burnout Generation. Young Millennials and Generation Z are rejecting corporate environments, partly because they were raised to believe they wouldn’t have to work in one. This population of young adults (myself included) needs to pay off debt and afford rent. These expenses have driven us to make compromises we thought we’d never have to make. Growing up, we were encouraged to “follow our dreams to become artists, designers, and writers.
Freelancing is challenging to navigate without the right tools and support. But being an artist, designer, or writer is unstable. Those of us working in a traditional 9-5 role trade labor for the stability of workplace benefits, i.e., a regular salary, a 401k matching program, and (in the United States) health insurance. These benefits have long driven individuals to venture into traditional corporate structures.
When the U.S. needed to develop economic reform to recover from the Great Depression and World War II, economic theorists rejected the idea that the U.S could import European social structures, where the government paid for and protected social services. Instead, corporations became social institutions, providing those benefits.
Over time, these social benefits have eroded, leaving workers feeling burned out and apathetic at jobs they don't find meaningful. Wages have stagnated, and job satisfaction for employees under 35 has dropped as neither the companies we work for nor the federal government are willing to protect our environment or working conditions.
DAOs represent an opportunity for our economy to be rebuilt locally, working together with traditional institutions to improve the environment and community outcomes. When individuals own the result of their work, everyone benefits.
Corporate Governance in American Political Development
In 1932, President Franklin Roosevelt added Adolf Berle into his brain trust to create new economic reform to bring the United States out of the depression and embrace the Industrial Revolution. American political theorists were in two economic reform camps. The first was to bring European Socialism to the United States. The counterpoint was that America had a different political development process than Europe. This line of thinking was called “American Exceptionalism.” It perpetuated the idea that socialism could never be implemented in the United States because our historical political development did not provide an avenue for socialism to succeed. The second camp was to embrace liberal capitalism.
Berle rejected both of these options. Instead, he argued that production in the U.S. economy was in the hands of the largest 200 corporations. Trusts, such as Vanderbilt, Carnegie, Edison, and Rockefeller (all titans of industry), were being turned into corporations. Whereas trusts are legal entities with a group of owners, these corporations “did not have identified owners.” Even within those corporations, decision-making power was still centralized in the hands of managers. Despite having the formal authority to make decisions, shareholders were not involved in voting or making decisions. This is partly because those individuals with shares did not have the expertise, attention, or interest to weigh in on decision-making, leaving that responsibility to those at the top level of the organization.
Berle and his co-author, Gardiner Means, wrote The Modern Corporation and Private Property, and the book has two central agreements:
- A small number of corporations dominated society.
- This type of organization represented a different kind of economic institution where control was in the hands of a small group of people who were not the owners.
Berle envisioned a strong federal government that could oversee a large corporate sector. Within the first few months of FDR’s presidency, three critical pieces of legislation Berle advocated for years can into law: “the legal separation of commercial and investment banking, federal insurance of bank deposits of working and middle-class Americans, and the federal regulation of stock and bond offerings by corporations.”
Berle left the American government in 1946, but his ideology spread, and political economists began to iterate on his original theory. The original idea was that the only check on big governments was a big federal government. As World War II was coming to a close and soldiers were coming home from Europe and Japan, the American government unleashed a host of government programming to support their return to the workforce.
Whereas Berle and FDR’s New Deal policies built a strong government to check corporations, at the same time, people were forming consumer protections, unions, and cooperatives to advocate for their rights against large corporations that dominated the market.
In the 1930s, farmers started forming electric cooperatives to bring electricity to far-flung rural areas. In 1935, FDR began a New Deal program to issue low interest-rate loans to farmers, which they then used to create cooperatives. Where big corporations tried to prevent these cooperatives from succeeding, they managed to continue and bring electricity to these areas. Unions, cooperatives, and other organizing groups (like consumer protections, farmers, and trade associations) began to rise. This level of collective action became an additional check on large corporations.
When corporations had these counterbalances, they had to respond to the needs of the government, unions, cooperatives, and consumer groups. President Harry Truman introduced a set of policies called the Fair Deal in 1949 that included welfare policies, such as national health insurance, federal funding for public education, and a new set of laws to strengthen unions. Since these did not pass, as Nicholas Lemann suggests in Transaction Man: The Rise of the Deal and the Decline of the American Dream, American corporations were pushed into becoming the entity to provide their employees with healthcare, family leave, and other social benefits that in Europe, the state offers.
Until the 1970s, American political thought was rooted in the concept of corporations as social institutions. In 1970, the economist Milton Friedman published the article “The Social Responsibility Of Business Is to Increase Its Profits,” which states that the only obligation of businesses is to create profit for their shareholders. After the publication of this article, companies started correlating executives’ pay with the stock price; the underlying incentive is that a CEO’s primary responsibility is to create value for its stockholders. The sentiment in the United States changed from a powerful federal government overseeing companies’ contribution to the public good to one where companies only think in terms of creating value for their shareholders.
Before 1970, 1/3 of Americans belonged to a union, and the average age of a company was 68 years. Since the publication of Friedman’s article, union membership has dropped, wages have stagnated, and the average lifespan of companies has fallen to 19. Once corporations traded long-term, sustainable development for short-term goals to increase their profits, positive employee and company outcomes dropped.
Friedman’s economics enables companies to function as businesses, not social institutions. The value proposition of working for a larger company is employee stability. Individuals give up the freedom to do work or find meaningful for the stability of a decent paycheck, health insurance, 401k matching programs, a short commute, and other benefits in return for labor. Wage stagnation, union rights slowly eroded over time, and employee job satisfaction for people under 35 has taken a nosedive.
The only accessible way out of this system is to invest in the stock market in hopes of being able to retire early. But by investing in the stock market, individuals are actively giving their money to the same corporations destroying the environment, monopolizing the market, and committing human rights violations. How can organizations develop a long-term strategy that encourages better outcomes for their shareholders and gives employees more flexibility to do work that is more meaningful for themselves?
As Berle identified early on, corporations have had a top-down value creation structure. This structure is one in which the organization has a fleet of managers and leaders who make decisions and then hand those decisions down for employees to execute. This structure leads to less autonomy for employees and more bureaucratic policies, such as travel policies that interfere with decision-making and a lack of transparency that breeds a culture of secrecy. Companies with a top-down value structure, where the CEO and the leadership are the only ones at the organization who make decisions about the direction of the network (traditionally structured organization), do not innovate as quickly and have a shorter lifespan. Both metrics point to organizations that narrow their focus from creating value for their employees, communities, and shareholders to the short-term goals of making money for their stockholders. This is the culture that those in the workforce are rejecting.
The DAO Opportunity
Decentralized Autonomous Organizations (DAOs) are flexible entities that enable members to have a high context to overcome internal barriers and support new ideas, goals, and strategies. DAOs use blockchain-based mechanisms that allow members to coordinate and manage capital using smart contracts. Members can pool and deploy capital together to fund projects, member activities, or grants; this functionality elevates a working group from a group of individuals to members of an account that can allocate capital resources and settle contracts on-chain. Smart contracts add a layer of complexity that reduces human barriers and bureaucratic policies. Smart contracts automate the documentation, control, and execution of events or actions. This mechanism eliminates the time, and attention employees at a traditional financial organization spend waiting for approval; smart contracts allow DAO members to work autonomously.
DAOs have a decentralized value creation model that enables anyone from the organization to contribute to the overall goals and mission. A decentralized value-creation model is one in which organizations are structured so that individuals contributing to the organization can add value without bureaucratic policies or leadership standing in the way or passively preventing that information from spreading to others. Decentralized value-creation models embrace the fact that good ideas can come from anywhere.
DAOs are an alternative to traditional financial institutions, where employees are restricted in their contributions by management or have to rely on levels of bureaucratic barriers. DAOs work through various legal structures other than an LLC or nonprofit to establish and maintain a form of sociocracy or democracy within the organization. Smart contracts and multi-sig accounts are tools that, when added with a different legal structure, offer a platform for individuals to have more ownership over the organization and autonomy within their role.
Some DAOs align behind a mission, complete that mission and then disband quickly. This makes them a powerful organizing tool for raising money for specific causes. ConstitutionDAO, which rallied individuals to purchase a copy of the constitution and then disbanded shortly after being outbid, and ChoiceDAO, which aims to raise and distribute capital to programs expanding reproductive access, both used DAOs as a way to organize and raise what would otherwise be called “grassroots funding.”
Other DAOs align interests and allowing members to interface with others within their subject area, like a trade association. Groups of individuals are forming DAOs to share collective resources and publish work together, such as MetaPortal DAO for research in gaming governance and LaborDAO for coordinating employees looking to start unions or go on strike.
Some blockchains and base layer protocols launch DAOs to govern their infrastructure. DAOs allow for advanced versions of committees and working groups. These mechanisms add a much-needed layer to the current token-based voting models. For example, Gravity Bridge is establishing a federated DAO structure to provide stewardship and curation of the digital infrastructure. Federated DAO structures enable token holders outside of the core team and the foundation to have an influential voice in protocol decisions and provide a check on others’ work. Federated DAOs are similar to unions and provide all token holders the opportunity to join a governance committee.
DAOs can serve a role that nonprofits like Seed Commons have traditionally filled. Where nonprofit organizations and charitable foundations still rely on hierarchies, DAOs solve Berle’s original problem. DAOs are collectively owned, giving the rights of decision-making directly to members and creating an incentive mechanism for members to pay attention and vote. DAOs that support collective ownership can interface with local governments and traditional businesses to foster a mutualist economy with better outcomes for DAO members, capital contributors, and local communities.
The not-so-distant future is an assemblage of cooperatives, DAOs, mutual aid groups, small businesses, corporations, unions, and local governments that work together to make our communities more sustainable. This environment requires mutual-credit firms that provide groups and organizations with low or no interest funding to start projects. FDR initially created a program for individuals from the federal government that could provide that funding. But now, we have the opportunity to start this type of organization on our own. One organization, called the Seed Commons, is leading the way. DAOs can follow. In the face of a federal government that doesn't create change the way citizens need it to, communities have the tools they need to be able to respond by protecting and caring for each other.
Past economic policy in the United States expected corporations to become social institutions to provide employees with the benefits we need to live healthy and productive lives. Then corporations stripped those benefits away because those benefits were no longer considered valuable. DAOs make being an artist, designer, or writer more stable by providing healthcare and payroll services to freelancers. They can make working in a business easier through lack of hierarchy and emphasis on transparency.
DAOs in place of a corporate structure can empower employees by providing autonomy, transparency, and ownership. DAOs can also act as a coordination mechanism for funding raising and a source of collaboration and research sharing with others.
Local, flexible, rhizomatic networks can respond faster and often better than institutional support. In the wake of the 2020 and 2021 lockdowns from Covid, more communities are addressing the needs of the most vulnerable through robust mutual aid networks and community support networks. When our social institutions, structured corporations, and government fail to respond to the needs of communities, DAOs, collectives, cooperatives, and other local organizations are developing the tools to support neighbors.