I often wonder if DAOs are really different from Big Tech. I believe they can be, but that must be an intentional choice. I hope to tell you how DAOs can be different from Big Tech.
Big Tech companies have revolutionized the way we live our lives, from the way we communicate with each other to the way we consume information. It is a dominant force in our economy, with companies like Meta, Amazon, and Alphabet (Google) controlling vast amounts of data and wielding immense power. However, as these companies have grown, they have also faced growing scrutiny and criticism for their actions on a number of issues you are familiar with. These shortcomings have serious consequences for individuals, communities, and the economy as a whole.
But let’s be clear: the revolution it has promised, and the exploitation resulting from it, is not a bug. That’s A feature. And curiously, a feature of legal entity choice.
The common law definition of a traditional stock corporation is to generate the maximum amount of returns for passive stockholders. If you’re not familiar with Dodge v. Ford (204 Mich. 459, 170 N.W. 668 (Mich. 1919), here’s the relevant part: A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.
So when a companies like the ones above hold large portions of the market, and return so much profits to their stockholders, while paying peanuts in wages to workers who are suffering in their warehouses, then it is a success and it could not have done any better. It filled the pockets of investors and screwed everyone else.
That’s where shared ownership, community-oriented models come in. Cooperatives and worker-owned businesses offer a way to promote more equitable distribution of resources, aligned incentives, democratic decision-making, and mutual benefits. These models consider the needs of workers and their broader communities (stakeholders) and not simply the interests of a small group of investors or shareholders.
For those new to cooperatives, the internationally accepted definition of cooperative that it 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. As I like to say, it is a business model, it is a governance model, it is a (set of) legal entity type(s), and it is a set(s) of principles. It is a stakeholder model, that is by the members, for the members. Those members have rights to a proportional share of profits and they participate in decision-making usually on a one-member, one vote basis.
One of the key ways that cooperatives can address the failures of Big Tech is by prioritizing user decision-making power over their data and privacy. Let the member-owners decided what data is collected, how data is collected, and how it is used. And if the users are okay with selling their data, then the cooperative model allows them to be compensated accordingly.
Another way that cooperatives address the failures of Big Tech is by emphasizing community impact over profit to a limited number of investors and stockholders. Again, this is not compatible with the traditional corporate legal structure that’s controlled by a mismatched set of financial greedy interests driving the priorities of that business.
The cooperative model isn’t perfect and has its share of obstacles, such as limited access to capital, limited expertise, slower decision-making, lack of awareness of the model, regulatory and legal barriers, and difficulty in scaling up. But these are solvable problems with innovative solutions, such as decentralized financing platforms and improved and creative government policies. We could start by making access to capital easier and stop asking for personal guarantees from the members, to provide loans to co-ops. Then, we could make it easier to operate across state borders – foreign registration and entity equivalency can be very challenging (I’m looking at you New York state).
Blockchain technology is an exciting development that can help overcome some of these hurdles. It offers a range of new features for cooperatives, including decentralized governance and ownership, streamlined decision-making, increased access to capital, greater security, and enhanced interoperability. Web3 technologies can help cooperatives create a more equitable and sustainable economy, and we should explore ways to leverage this potential good marriage. So supporting the development of blockchain technologies and web3 as a sector is net positive for cooperatives.
Besides the technology, DAOs seemed like an innovation, and an exciting turn of events. Then they became a fad. I got calls from big corporations interested in “starting their own DAOs”; “how do we start a DAO?” they asked. Paying to get one is not “it”, I often want to say.
I am over questioning whether DAOs are businesses or not. They are. To be fair, in my practice, I’ve advised several dozen decentralized groups, a number of which are worker-driven (usually developers), and they could/do function as worker cooperatives. Another sizeable group of my clients is user-centered data projects, very similar to platform co-ops. These are cooperatives that are owned and governed by their users, rather than by investors. Platform cooperatives offer an alternative to traditional platforms by bringing collective ownership and shared decision making to the web. Examples of platform cooperatives include ride-sharing platforms (like the Drivers Co-op), food delivery platforms (like LoCo Co-op), and job-matching platforms (Fuse Cooperative), all of which are innovating in the sector.
I do believe that abiding by the coop principles is critical to the integrity of the cooperative model and adopting the cooperative corporation or limited cooperative association is important because it brings those principles into the DNA of the business. Especially democratic member control and member economic participation. So when I assist DAOs in adopting the cooperative model, I have the same expectations for them that I have for cooperatives, such as the controlling factors of shared governance, with one member, one vote, or patronage-based voting, and returns based on patronage and engagement, and not based on investment.
But Web3 faces its own set of challenges and the one I find relevant to mention is the role of investors in the sector (although finding the most aligned path to decentralization outside of the initial control group is a very important one). Many of the DAOs I consulted with have them, either through a direct investment, often by a beneficial founding person or group – like a core team, or through an entity that seeds capital and develops the initial tech and stays involved until the coop is self-sufficient. Self-sufficient in this case means they have enough people involved to shift the board composition and effectively reduce the overlap between the founding entity and the DAO co-op.
I see both DAO projects that reflect a stakeholder ownership model, and also a number of projects that are heavily financed by outside, profit-driven investors. I am concerned that without the adoption of a clear set of principles, like the cooperative movements have done with the Rochdale principles and the Mondragon principles, Web3 will be overtaken by those investors missing the mark on what the Web3 ethos of shared ownership and decentralization.
Shared ownership models offer a promising alternative to traditional business models that prioritize profits over social welfare. Web3 technologies and platform cooperatives can help to overcome the hurdles that these models face, and create a more equitable and sustainable economy that benefits everyone. We must work together to promote and support these models, and ensure that our economy is serving the needs of all people.