Artificial Intelligence (AI) and distributed ledger technology (DLT) are referred to as the new ‘Corporate Technologies’ or ‘CorpTech’ (Enriques and Zetzsche, 2019), currently watched in terms of their potential for change. Specifically, we are watching for the extent to which the organisation, structures and processes, and institutions of economic life, especially those under the aegis of corporations, would shift in response to the advent of AI and DLT. We also need to consider if such shifts warrant responses from the law. We discuss AI and DLT as different domains of technological advancements but they also interface at certain points. The different treatment we give to AI and DLT is essential as their impact on change is different. However, as we will engage in theoretical treatment of how technological change impacts institutions and corporate law more generally, we refer to ‘CorpTech’ as an umbrella term where relevant.
We make two distinct but interrelated contributions to the literature on CorpTech in our article in the Berkeley Business Law Journal. First, we advance an analytic framework, which we term as ‘incremental/facilitative’, ‘radical/disruptive’ and ‘fundamental/structural’, to promote a nuanced understanding of the development of AI and DLT and their effects on business processes, organisation and management, particularly on corporate governance. Second, we develop a theory of how CorpTech will shape corporate law and governance by examining the drivers for institutional change combined with the drivers for corporate law and governance. We argue that CorpTech is unlikely to radically alter the power structures and incentive mechanisms of shareholders, directors and managers, and hence, any fundamental/structural changes to corporate governance are not likely in the near future.
After providing a critical overview of AI and DLT and their effect on business practices and corporate governance through this three-level framework, our second contribution is to demonstrate that the major power groups influencing corporate law and governance norms are likely to mobilize old ideology with technological spins in order to achieve incremental institutional changes aligned with their incentives and interests. We suggest it would be unlikely that institutional change would be achieved to facilitate radical/disruptive or fundamental/structural changes to the extent that it denudes extant power structures of their power. To make this argument, we first explore the key theoretical drivers of institutional change. Subsequently, we explain how these drivers are connected to the theoretical drivers for changes in corporate law and governance, specifically the role of shareholders and directors/managers within the context of different economic systems and ownership structures. Finally, we apply this combined theoretical framework to the three-level framework of technological change we discussed. We predict that directors and shareholders will embrace incremental/facilitative AI and DLT to render the board and general meeting decision-making process more efficient and effective. AI is, however, unlikely to fully replace directors or managers, let alone companies, in the foreseeable future. Thus, the idea of self-driving companies is unlikely to become a mainstream economic phenomenon. We are also doubtful that DLT will result in full disinter-mediation as powerful corporate organs will prefer to manage and subsume its use to be compatible with their incentives and preferences.
Iris Chiu is Professor of Company Law and Financial Regulation at the Faculty of Laws, UCL.
Ernest Lim is Associate Professor at the Faculty of Law, National University of Singapore.