The Impact of the Digital Transformation of Business on Corporate Governance. An Overview of Recent Studies

Abstract

This article presents a survey of recent studies on the impact of digitalisation, and particularly blockchain technology, oncorporate governance and the principal-agent conflict in companies. The principal-agent conflict has been a centerpieceof the corporate governance research for more than 40 years. However, recent technological developments, andblockchain in particular, has created new avenues for exploration.We survey the implications of blockchain for the principal-agent conflict in three parts: 1) the organisationalenvironment, and the creation of the conflict; 2) common observable instances of conflict; 3) actions necessary tomaximise the value of blockchain implementation. We limit the studied conflict to the relationship between shareholdersand management. We also limit the blockchain use cases to those currently in testing. The applications for blockchain insecurities trading and for corporate functions automation via ‘smart’ contracts are both analysed. We also evaluate theimplications for investor activism.Our results indicate that passive investor behaviour is at the core of the environment that creates conflict. One of thekey drivers of low activity is a non-transparent voting process resulting in low participation rates. Studies indicate thatblockchain can solve this issue, thus mitigating the conflict, and is an attractive proposition for board members. Themost frequent instances of conflict are related to the composition of boards of directors and compensation schemesobserved at shareholder voting. Using blockchain for settlement would eliminate ambiguity in shareholder registersand prevent such strategies as “empty voting”. Smart contracts promise automation of governance functions like audit,which also weakens conflict. Even skeptics agree that voting is a promising application for blockchain. However, thereis evidence that blockchain poses its own problems, and that smart contracts are associated with practical risks. Somecritics argue that blockchain is less efficient than conventional corporate procedures.Blockchain is among the top digital technologies that business leaders have to monitor closely. As such, this overview ofthe most up-to-date thinking on the subject is relevant for anyone interested in the future of corporate governance andthe digitalisation of business processes. This evaluation serves to highlight the current status of this innovative resource,outlining for both professionals and newcomers what exactly blockchain’s potential uses and implications are, while alsooutlining where a lack of quantitative research creates opportunities for further contributions to the research field. Thisstudy will also be instructive for those investigating blockchain implementation and the optimal characteristics of thesolution.

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