Self-Ownership of Firms
What is Self-ownership?
"The idea that firms should be controlled from within — instead of depending on the will and the whims of distant shareholders — is not new. Cooperatives have been a way to keep the power inside organizations. The Statement on the Cooperative Identity states that a cooperative is an “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.”
Another way to prevent the alienation of a firm lies in the economic and legal concept of steward-ownership, which seeks to restrict the ownership of a company to its “fiduciary owners, i.e. stewards who control the company but do not hold dividend share”.
Such self-owned companies have been around for more than a century, mostly in northern Europe. They rely on legal mechanisms to ensure that the control of the company cannot fall into the hands of persons who pursue their own, private interests. A common way to achieve this goal is to give the voting rights to trustees who have no economic interest in the company, often through foundations. Most of the profits are either reinvested in the company or donated.
As Armin Steuernagel noted, “[self-owned companies] challenge traditional ideas about the importance of private corporate ownership.” Since controlling rights are split from economic rights, stewards do not hold economic incentives, which contravenes the dominant narrative that links business performance with the financial incentivization of the owners. Actually, self-owned companies outperform the market on average and include multi-billion dollar businesses such as Bosch or Zeiss.
Self-owned companies put less emphasis on democratic governance (decentralization) than cooperatives, since stewards are generally executives and managers. On the other hand, they use legal mechanisms designed to ensure that the interest of the company itself prevails over any private interest (autonomy), including those of its internal stakeholders." (https://hackernoon.com/who-owns-my-dao-93cb87a24561)
""A DAO can be understood as a self-owned entity, which cannot be controlled by anyone but itself.
DAOs give a new meaning to “self-ownership” of organizations. DAOs work according to rules that are defined and enforced through code running on a censorship-free, distributed network. No party has the power to force the DAO to suspend or to change the rules that govern its activity. Political, economic and social forces have little sway over software constructs shielded by a public blockchain.
In this sense, DAOs are truly “autonomous” (from αὐτός — autós, “self”, and νόμος — nómos, “law”), i.e. they are governed by themselves. They achieve a form of self-sovereignty thanks to the emancipation power of the code, even when surrounding jurisdictions do not recognize them as legal persons. Their code is their essence. To the extent that it runs on a public blockchain impervious to political and economic powers, nothing can alter their behavior. De facto, they own themselves, and nobody really owns them.
The same logic applies to the value side of the ownership. A DAO controls its own crypto-assets and can use them to perpetuate itself — if this is what its code dictates. These assets cannot be seized by any party unless the DAO’s code authorizes it.
What can we conclude from this tension between decentralization and autonomy, between the ownership of many and the ownership of none? How may it affect the way we should design DAOs?
We’re contemplating here two irreducible dimensions of DAOs:
“Owned by many” refers to the social layer, a diverse set of parties who hold influence over the governance of a DAO. “Owned by none” alludes to the automation layer that expresses and automates the working rules of a DAO. As a deterministic protocol, the automation layer is fundamentally incapable of transforming itself in order to provide adequate responses to evolutionary pressures.
Of course, it is possible to organize social processes through the automation layer by specifying how the parties may voice their preferences and how decisions should be taken as a result, including decisions that might change the protocol itself. However, such convergence of social and automation layers, often called on-chain governance, has its limits.
The jurist Carl Schmitt asserted that it is the function of the sovereign to deem a situation as an emergency that requires the activation of a state of exception, to suspend the normal legal order as a consequence, and to implement decisions that might lead to a new order. Personal judgment is required to do so — it can be a collective personal judgment — rather than the mere execution of an algorithm.
Reijers, W., Wuisman, I., Mannan, M. et al. have argued that the measures taken by the Ethereum community in the wake of The DAO attack in 2016 can be interpreted in a similar fashion. Social normality was disrupted by the hack, which introduced a systemic financial risk for Ethereum itself. Eventually, a hard fork was decided and implemented, which can be compared to the inception of a new legal order.
The DAO drama was a paroxysmal illustration of the tension between the social layer and the automation layer. From the Bitcoin block size debate to the latest controversy about Szabo’s Law, this tension is constantly at work in crypto-networks." (https://hackernoon.com/who-owns-my-dao-93cb87a24561)