Governance (not equal to) Leadership: What Blockchain and AI Won't Do for Corporate Lawyers.

• Author: Lipshaw, Jeffrey M.
• Position: Artificial intelligence

"It's about time the piano realized it has not written the concerto!"

-Lloyd Richards, playwright, to Margo Channing, actor, All About Eve, in reaction to the latter's diva tantrum at a rehearsal after she has learned that Eve Harrington will be her understudy. (1)

1. INTRODUCTION 966 II. THE LEGAL CONCEPTION OF GOVERNANCE (HYPERBOLICALLY) 967 III. THE BUSINESS CONCEPTION OF GOVERNANCE (HYPERBOLICALLY) 969 IV. BLOCKCHAIN, AI, GOVERNANCE, AND LEADERSHIP 971 V. COMPOSERS, CONCERTOS, AND PIANOS 975 VI. CONCLUSION 978 APPENDIX A 979 I. INTRODUCTION

   I can identify the two most significant events in my career as a lawyer. The first was my transition, after having become a big firm partner, from full-time litigator to full-time transactional lawyer in 1989. The second was my move in 1992 to AlliedSignal Inc., (2) ultimately to become the general counsel of the multi-billion-dollar automotive division. The year before, AlliedSignal had appointed Lawrence A. Bossidy, the long-time vice-chairman of General Electric, best friend and second-in-command to Jack Welch, as its new chairman and CEO. (3) The company's odd name was itself a reflection of its growth in the 1980s. An acquisitive CEO, Ed Hennessy, had caused the famous Allied Chemical Corporation to step in as a white knight in the highly publicized and botched takeover war that William Agee, the CEO of Bendix Corporation, had launched against Martin Marietta. Allied ended up owning Bendix and later acquired The Signal Companies, resulting in a conglomerate hodge-podge that ranged from jet engines to seat belts to athletic shoes. (4)

   But it was a loosely organized confederation of fiefdoms not particularly committed to operational excellence. Hennessy was out, and Bossidy was to be the answer. He brought with him a commitment to the kind of leadership and organizational disruption that marked General Electric's vaunted managerial training programs. (5) One of the materials the headhunter firm sent me during my recruitment was AlliedSignal's 1991 glossy annual report (published just a few months earlier), containing Bossidy's first letter to the shareholders. (6) The theme was the reshaping of the company, one that would require leaders, not just competent managers, with a plausible shared vision and clearly expressed values making the business more competitive and successful and a more satisfying place to work. (7)

   The passage that rocked me on my heels, however, was about teamwork:

   We need people who are willing to share their ideas, who listen to others, who want to participate and be involved in the process. Without question, there will always be a need for leaders who set priorities and make the final decisions. But, at every level, they must actively engage each employee in developing the thoughts and ideas that shape those decisions. The Lone Ranger, the autocrat in the corner office, the guy with all the answers need not apply. (8)

   AlliedSignal had me with that last line. I had never felt like I had all the answers, but I had always believed it was incumbent on me to think that I did. I now attribute that to years of elite law school education and training and socialization as a big firm lawyer. Here instead was the express endorsement of a culture in which you could admit what you didn't know and your own need to learn. I don't want to suggest that it turned out to be corporate nirvana. The rhetoric almost always outdid the reality, both individually and organizationally. But it started me down the path of thinking, first as a corporate lawyer and leader, and later as a law professor, about the relationship of, and differences between, thinking like a lawyer, on one hand, and acting like a leader, on the other.

   That is the jumping-off point for this reflection on the role of blockchain and other digital technologies in corporate governance. To make my point, I am going to propose a dichotomy between two approaches to governance that I concede is hyperbolic. But I don't think it is unfair, at least when discussing scholarly treatments. Certainly, the reality is far more nuanced. The legal approach to governance, and therefore governance-related technology, tends to the quotidian oversight tasks of monitoring, discipline, and corporate compliance. In contrast, the business approach tends to the affective aspect of governance--in a word, leadership. It focuses less on the directors' role in oversight and far more about how the directors will contribute to the strategic and operational success of the organization. As a result, business governance is far less concerned with the tools that are amenable to digitization, and far more concerned with human attributes that resist algorithmic reduction. The two approaches are often ships passing in the night, something I attribute to the very training and socialization of lawyers in which I participated. The upshot is that, in the spirit Lloyd Richards's bon mot to Margo Channing in All About Eve, when we think about tools like blockchain in corporate governance, we should be noting the difference between the piano and the concerto, the tool and craftsperson, the notes we play and the music we make, the techniques we use and the purposes for which we use them.

2. THE LEGAL CONCEPTION OF GOVERNANCE (HYPERBOLICALLY)

   Professor Stephen Bainbridge's description of the usual functions and priorities of a corporate board of directors is typical of the orientation I have experienced among law professors who write and teach the subject. "First and foremost, the board monitors and disciplines senior management." (9) While "most boards have some managerial functions," commonly in "broad policymaking," and individual board members may advise and guide senior managers or provide access to business networks, "[a]mong these functions, however, the board's monitoring function reigns supreme." (10) That does not surprise me. Scholarly approaches to the monitoring take their cue from the way modern corporate law scholarship has incorporated prevailing economic models of the firm: (1) the "principal-agent" conception that addresses agency cost issues, i.e., the divergence of interests as between shareholder "principals" of the firm and its centralized manager-agents; (11) (2) the "nexus of contracts," under which the firm is an imaginary construct in which every relationship can be characterized by way of an explicit or implicit contract; (12) and (3) the role of institutional structures in ameliorating management opportunism vis-a-vis the shareholders. (13)

   Hence, in the (somewhat hyperbolic) legal conception of corporate governance, the core concerns are for risk, liability, and opportunism as between shareholders and management, particularly when it comes to the directors' fiduciary duty of care. Even before the advance of blockchain, sophisticated information technology like enterprise resource planning programs (SAP being one of the leading providers) that maintain and manage financial records and reporting has long been a staple of corporate management. And there has been no shortage in the last several years of scholarly paeans to blockchain as a major advance in the oversight and compliance aspects of corporate governance. While some commentators have noted its potential efficacy in mechanical processes like shareholder recordkeeping and voting, insider trading, corporate disclosures, and trade execution, (14) other theorists have speculated on the value it brings to controlling and monitoring the agency relationship between shareholders and management. (15)

   Recently, Joan MacLeod Heminway and Adam J. Sulkowski surveyed the impact of blockchain technology adoptions on shareholder recordkeeping and voting, insider trading, and disclosure-related considerations. (16) Joan Heminway is a far too experienced and savvy real lawyer (i.e., not just an academic) to think that record-keeping and disclosure is all there is to the effective corporate lawyering game. Hence, this observation at the end:

   This leads us to a final reflection on conceptualizing the role of attorneys in the blockchain era as including a vital mediating function. While we do not all need to become programmers, and while some legal professionals' roles could be automated, there is a key higher-order function that attorneys should appreciate and embrace. That role is to better understand the human values and interests of clients and other stakeholders and, in the words of Nick Szabo, to help translate the "wet code" of human norms into the "dry code" of software. (17)

   That is a fitting segue to the distinction between governance and leadership. The former might well be translatable into the dry code of software. I will suggest, however, that there are aspects of leadership consisting of human capabilities (if not norms) that no code, not even blockchain, can replicate.

3. THE BUSINESS CONCEPTION OF GOVERNANCE (HYPERBOLICALLY)

   Before getting to that, however, let's review what corporate governance looks and sounds like if you aren't a lawyer but a businessperson.

   One would think, if the board's monitoring function reigns supreme, lawyers and auditors would dominate. The 2019 U.S. Spencer Stuart Board Index says otherwise. (18) In 2019, lawyers represented one (1%) percent of both first-time and experienced directors, one (1%) percent of independent directors, two (2%) percent of named lead or presiding directors, and five (5%) percent of nominating/governance committee chairs. Retired public accounting executives or partners fared little better, representing four (4%) percent of first-time directors, two (2%) percent of experienced directors, three (3%) percent of independent directors, two (2%) percent of named lead or presiding directors, and one (1%) percent of nominating/governance committee chairs.

   Rather, the overwhelming majority of first-time, experienced, independent, lead, presiding directors, and nominating/governance committee chairs had...