In August, the Business Roundtable CEO lobbying group—led by JPMorgan Chase CEO Jamie Dimon and with members including Amazon’s Jeff Bezos—redefined the purpose of a corporation and essentially rejected Milton Friedman’s long dominant theory about shareholder supremacy. It was a historic moment that challenges popular teachings in MBA programs across the country and the business practices we see in corporations today.
That same week, a few hundred developers gathered in Berlin to discuss the future of DAOs, a relatively new organizational model that decentralizes power and decision-making among all stakeholders. The two gatherings, though philosophically divergent in many ways, were united in their core thesis that the classic corporate model is due for an upgrade.
This is, of course, a popular topic among organizational designers. Aaron Dignan, founder of design firm The Ready, opens his 2019 book Brave New Work with an image of an early 20th-century organizational chart, which looks exactly like the pyramid-shaped org charts of today. “If I showed you a house, a car, a dress, or a phone from 1910 and asked you whether it was modern or antique, you’d have a pretty good idea because almost everything has changed,” he writes. “But not management.”
The traditionally hierarchical model, with a concentration of power at the top, has persisted since the Industrial Revolution, when assembly-line work was in its infancy and Taylorism was the scientific management practice of the day. As we enter the next industrial revolution, we are operating in a far more complex global economy. “Somehow, amid a period of relentless innovation, including the internet, mobile computing, autonomous vehicles, artificial intelligence, and rockets to space that can land themselves,” Dignan notes, “the way we come together as human beings to solve problems and invent our future has stayed remarkably constant.”
Rigid hierarchies prone to bureaucratic gridlock have unique vulnerabilities now, whereas dynamic entities that can react quickly to “black swan” events have compelling advantages. Furthermore, as routine tasks are automated, humans will be freed to take on and create more creative roles—if organizations will allow it. A lot hinges on our ability to organize in new ways, including our collective wellbeing. Charity: Water founder Scott Harrison put it this way: “Eliminate bureaucracy, and awaken the humanity within.”
So what does the next evolution of the organization look like? How do companies harness a greater intelligence through design, and in the process cultivate human flourishing?
Creating soulful organizations
Former McKinsey consultant Frederic Laloux was compelled to find answers to these questions after a decade of exploring the interiors of some of the world’s most influential companies as a coach and advisor. He determined there must be a better way to design companies in the 21st century.
“I just couldn’t work with these big organizations anymore,” he told the New York Times. “They felt too soulless and unhealthy to me, too trapped in a rat race of just trying to eke out more profits.”
So he left his job and began researching organizations that are operating at “the next stage of consciousness.” Laloux discovered a number of successful companies that fit this description, ranging in size from a few hundred to several thousand employees. In 2014, he published his findings in an internationally bestselling book, Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness. His thesis, that there is an evolutionary process behind the way we organize ourselves, draws from developmental psychology and philosopher Ken Wilber’s mapping of the stages of human consciousness.
“This next stage involves taming our ego and searching for more authentic, more wholesome ways of being,” Laloux wrote. “If the past is any guide to the future, then as we grow into the next stage of consciousness, we will also develop a corresponding organizational model.” He doesn’t downplay the significant work it takes to get there: “Cognitively, psychologically, and morally, moving onto a new stage is a massive feat.”
The companies he identified as already operating within this new paradigm include French metal manufacturer FAVI; Buurtzorg, a healthcare network in the Netherlands; and iconic US apparel company Patagonia. His book provides all the details on his research methods and findings, but in short, a dominant shared trait among these progressive organizations is a decentralized hierarchy that facilitates self-organization. Trust is baked into the system; employees are given significant agency. Juxtaposed against the standard model, which is low on trust, this is revolutionary.
While decentralizing decision-making and power is not enough to ensure that companies operate at this next level of consciousness, it’s a critical piece. As companies evaluate how to design their workforces during this next industrial revolution, it’s worth exploring the lessons and data emerging from DAOs (“decentralized autonomous organizations”), which anchor near one end of the centralization decentralization spectrum.
DAOs are not for the faint of heart
DAOs famously emerged out of the 2008 financial crisis as the system design for cryptocurrency economies. Authentic DAOs are built on blockchain technology. Members can exchange value in a direct peer-to-peer manner through smart contracts, which are pre-programmed with an entity’s rules and bylaws. Decision-making is distributed among stakeholders, and the organization is essentially leaderless. DAOs have so far been effective for a number of cryptocurrency networks—most notably Bitcoin, which has a market capitalization in the range of $200 billion, rivaling that of some of the world’s largest companies. As with any new technology, DAOs are in the very early stages of development.
The 2016 hack of “The DAO”—a smart contract on the ethereum blockchain which raised $150 million and lost about a third of its assets—revealed critical vulnerabilities, proving these systems are not immune from rogue behavior, even though they are designed to promote and protect rational actors. But the popularity of The DAO also signaled real interest in this emergent organizational structure.
There are a number of communities that are designed to support the creation of DAOs, including Aragon, Colony, and DAOStack. These organizations provide tools like dispute-resolution frameworks that aid in the scaling of decentralized networks. DAOs aren’t limited to a physical location and they “allow anyone in the world to create value,” says Aragon co-founder Luis Cuende.
Among the biggest opportunities and challenges for DAOs is the process of developing new governance protocols. DAOs ask all of their participants to exercise true agency and self-sovereignty, behaviors that are not necessarily intuitive (and not always rewarded) in traditional corporate environments. Additionally, “as citizens we’ve become numb to the idea of a participatory-type of system,” Stratis Karad, a business developer at DAOStack, said on the “State of the DAO” panel discussion on the Emerge podcast. “If we give [this muscle] enough rest and good stimuli then this muscle will wake up again.”
In short, DAOs require adopting entirely new ways of thinking. “Being decentralized is not for the faint of heart!” Ceri Power, who handles people operations at ethereum blockchain messaging startup Status, wrote in a Medium post. “It takes a lot of belief in the core values of autonomy, privacy, personal liberty, and open source.”
Entrepreneur Tom Thomison, who co-founded HolacracyOne, a consultancy that provides a framework for self-organization, says that decentralized entities require a new social contract—one that is quite different from the “social parenting construct” embraced by today’s corporation. “Don’t expect as individuals to get these needs met through the organization,” he says. With his next startup, Encode, Thomison is developing new legal infrastructure in jurisdictions around the world that can support the next evolution of the organization.
It’s all about incentive alignment
At the end of the day, no matter where you stand on the centralization decentralization spectrum, organizations experience long-term success or failure due to the strength of incentive alignment among all stakeholders—employees, leaders, customers, suppliers, society at large. The Business Roundtable took an important step by formally acknowledging this.
We are only in the early stages of this next evolution in consciousness, which begins with greater self-awareness and exploration. How it manifests at scale remains to be seen, but thanks to a number of pioneering leaders and organizations, we have some clues as to what’s ahead.