An analysis of the governance and integrity challenges confronting blockchain-based businesses: presentation to the Association of Professional Futurists and Law Futures Centre

1. Tim Cadman: Institute for Ethics, Governance & Law, Griffith University
Griffith University
South Bank Webb
Centre (S07) Room 2.10
13:30-15:00
28 October 2017
Governance values in the
blockchain:
ensuring the institutional integrity
and legitimacy of decentralised
autonomous organisations

2. Relevant Publications
2
Quality and legitimacy
of global governance
International Political
Economy Series
Palgrave Macmillan
(2011)
Conceptualizing
personal and
institutional integrity
The Ethical Contribution
of Organizations to
Society.
Emerald, pp. 1–40 (2015)
with Hugh Breakey &
Charles Sampford
Cadman, T., Maguire, R. &
Sampford, C. (2017).
Governing the Climate
Change Regime:
Institutional Integrity and
Integrity Systems, T.
Cadman, R. Maguire, and
C. Sampford. London:
Routledge.
Breakey, H. & Cadman, T.
(2015). ‘A comprehensive
framework for evaluating
the integrity of the climate
regime complex.’ In Ethical
values and the integrity of
the climate change
regime, H. Breakey, V.
Popovski and R. Maguire
(eds). London: Ashgate.

3. Observations so far…
• Globalisation is resulting in ‘non-spatial’ institutions,
– not governed by any single state, or jurisdiction (cf. Uber)
– Who is responsible/accountable?
• Traditional institutional structures (boards, executive
committees, AGMs etc.)
– are on their way out, replaced by ‘curators’, ‘miners’, etc.
• DAOs and related block chains have already been
subverted
– How can users/consumers determine which DAOs are
legitimate?
• What is the role of the state, and how should DAOs be
regulated
– What national/governmental and
international/intergovernmental norms/laws are required?
 How will/should DAOs be managed (governed)?
– What governance and integrity systems are required? 3

4. Summary
• Integrity refers to the extent to which institutional
actions accord with stated intentions
– subject to issues of consistency, coherence, context and
contingency
– The more these accord one with another, the fuller or more
comprehensive the level of integrity
• Governance refers to the structures and processes
(organisational arrangements) for steering and co-
ordinating relations between actors within institutions
– Quality (strength) of governance is determined by values
– Can be ‘strong’ or ‘weak’ depending on the values adopted
• Quality of governance, institutional integrity and
regulatory frameworks will be critical to ensuring the
legitimacy of blockchain technologies, in multiple
contexts, sectors and jurisdictions
– finance, contracts, peer-to-peer exchange/trade, etc.
4

5. Institutional integrity
• Integrity refers to the extent to which institutional
actions accord with stated intentions (‘public
institutional justification’ – PIJ)
– Consistency-integrity: actions accord with public
institutional justification (PIJ);
– coherence-integrity: organisational arrangements accord
with PIJ (especially relevant to nested institutional
arrangements, e.g. Paris Agreement);
– context-integrity: environment facilitates living up to PIJ
– Contingency: random events impact on meeting PIJ
– The more these accord one with another, the fuller or
more comprehensive the level of integrity
5

6. Figure 1 conceptual map of institutional integrity
6
C
A
U
S
E
S
E
F
F
E
C
T
S
External Relations with
other institutions and actors:
E.g. regulators.
Context-integrity: Extent
to which surrounding
environment promotes
the DAO living up to its
PIJ.
Other dynamic events: E.g.
major hacks; financial crises;
State security crack downs
(China).
Contingency: Impact of
sudden events DAO’s pursuit
of its PIJ.
Together coherence-
integrity and context
make up the DAO’s
‘integrity system’.
Internal organizational
arrangements: ICOs, trading
platforms, peer-to-peer
networks): Includes all sub-
institutions (e.g. blockchain:
miners, etc.,) and their inter-
relationships. (governance)
Activities:
Creating
outputs,
standards
and so on.
Consistency-
Integrity:
How well do
the DAOs
activities,
and their
results,
accord with
the
institution’s
PIJ?
Organizational context: e.g.
Relations with crypto-
currency being used for ICO.
Comprehensive
integrity:
Sum total of the
DAO’s Coherence-
Integrity, Context-
Integrity and
Consistency-
Integrity.
Member’s Values of the DAO
and its sub-institutions.
Coherence-Integrity:
Extent to which DAO is
constituted so as to live up
to its PIJ. (governance)
Legal context: Framework
of international and national
law, courts and regulators.
The DAO’s PIJ is given by the organisation’s principles and objectives.

7. Governance
• Governance refers to the structures and
processes (organisational arrangements) for
steering and co-ordinating relations between
actors within institutions
– legitimacy (quality, effectiveness) of governance is
determined by the extent to which values (and what
kind) steer and co-ordinate stakeholder interactions,
and the products they create.
• values: norms that improve the way steering and co-
ordination occurs& can be ‘thick’, ‘thickish’ or ‘thin’
depending on the values adopted BUT thickness
determines legitimacy: the thicker, the better.
7

8. Institutional arrangements for quality and
legitimacy of governance
8
Figure 1: Conceptual model for evaluating governance legitimacy
Source: Breakey, Sampford and Cadman (2016)

9. Governance values
Thin: minimum conditions for basic oversight & avoiding
gridlock:
– such as accountability and transparency.
– Focus on structure and process not outcomes
Thickish: functional realism for reaching agreement
– Inclusiveness (who and is included and how)
– Focus on the possible (resource constraints) and reaching
agreement
Thick: ‘governance for legitimacy’
– Democracy in decision-making and implementation, equality
of power relations, settling disputes
– Focus on effectiveness (i.e. durability of output, that solve
problems, change behaviours) and collaborative governance
arrangements (multi-stakeholders, partnerships and network-
type models.
9

10. Comprehensive list of governance values
Principle Criterion Indicator (value) Thickness
“Meaningful
participation”
Interest
representation
Inclusiveness THICKISH
Equality THICK
Resources THICKISH
Organisational
responsibility
Accountability THIN
Transparency THIN
“Productive
deliberation”
Decision making
Democracy THICK
Agreement THICKISH
Dispute settlement THICK
Implementation
Behaviour change THICK
Problem solving THICK
Durability THICK
Table 1: Framework of principles, criteria and indicators (PC&I) for evaluating governance quality
Cadman (2011) – adapted (Cadman et al. 2016) 10

11. Governance & integrity challenges
• Finance (investment, share transactions,
exchanges etc., especially ICOs):
– How to ensure responsible environmental, social,
governance (ESG) outcomes? Cf. GFC
– Money laundering (business viability is not the only
issue)
• Contracts
– Implementation: how to ensure compliance
(monitoring, reporting and verification) and
• Peer to peer trade
– Does the PIJ accord with actual activities (cf. DPR and
Silk Road)?
11

12. Conclusions
• DAOs
– No different from real world, bad governance and lack
of integrity have consequences
• Sector based standards & regulation essential
– Without them, individual consumers and society at large
are unprotected
• Blockchain
– Build in integrity systems and governance
arrangements into algorithms
‘Gold standard’ sufficiently legitimate for state sanction
(China), ‘next-generation’ currency & market credibility
12

13. Thank you
t.cadman@griffith.edu.au