Web3 Organizational Leadership Models

Summary: New models for organizational leadership are required by the digital economy. Philosophical traditions like Quakerism should guide their development.

I've been reading and thinking recently about both governance in the digital age (here and here for two foundational pieces), and Quaker history (background reading here, here and here ).  I see a bridge: the organizational leadership model informed by the Quaker philosophy should inform Web3 governance structures.

First, important background on Quakerism.  Quakers believe there is 'that of God in everyone.' Believers stress equality. Traditionally, there is no positional authority from title or tenure. As a result, organizations led in principles of Quakerism have highly consultative decision making processes.

Meetings start with silence, providing a moment for reflection and grounding before issues are raised. 'Claiming a moment' provides a pause before individuals start in on their discussion.

From there, Quakers believe in continuing revelation. Leaders are 'Clerks' of meetings, not 'Chairs' and attempt to guide the collective body toward consensus.

In Quakerism, truth stands outside of any one individual. Only through the ongoing sharing of individual perspectives does one get closer to the 'correct' path. The process of threshing a decision helps a deliberative body of individuals find the right path forward. Since no one holds the 'truth,'  every person shares their lens into the truth to help the body as a whole discern the best course for the collective.

At some point, the Clerk looks for a 'sense of the meeting' to reach consensus. Consensus is not reached by a vote, nor does it equal unanimous agreement.  Importantly, the group as a whole can reach consensus on a decision even while specific individuals have different individual preferences as long as the individuals concede to the decision making process of collective discernment.

The meetings conclude with members signaling their support for the collective decision with a verbal 'I approve.' This is not a vote.  It is an individual affirmation of the final decision reached by the body overall.  And a commitment to support.

I see a link between this process and the much celebrated decision making processes led by Jeff Bezos at Amazon. The Amazon process starts with a written memo allowing for personal contemplation and reflection before discussion. In the meetings, everyone present is asked to voice their perspective, reflecting on or building on the memos and other perspectives. Once all voices are heard and a decision is reached, the participants agree to 'disagree and commit' if their position did not carry the day.

There is not much distance from Amazon's 'disagree and commit' culture to the Quaker 'I approve.'  Though, I prefer the positivity of the latter, rather than forced recognition of continued disagreement in the former.

That is a brief background on Quaker decision processes.  What interests me, however, is where and when that leadership model has thrived, when it has not, and what the implications of new technology are for the future of this leadership model.

Quaker Leadership Models in Three Acts

Quakers as Conscious Objectors

Quakerism started in the 17th century in England.  Pennsylvania was founded in 1682 by William Penn, a Quaker, as a refuge for persecuted Quakers, and was initially led by Quakers. Soon, however, Quakers largely retreated from public leadership roles.

In American and English governance, Quaker participation came from the outside, as social advocates for greater equality.  See Susan Sachs Goldman's Friends in Deed for a terrific history of Quaker leadership as 'outspoken advocates for peace and social justice' throughout American history, including in the  anti-slavery, women's rights and global humanitarian movements.

The leadership model of Quakerism produced influential individual social advocates, and influenced both public opinion and governance decisions in important American policy debates such as the abolition of slavery and women's suffrage (all detailed in Friends in Deed). Yet, the leadership came from the outside, as strident voices for reform, not from direct leadership of large organizations outside of the Quaker community.

Indeed, with a few notable exceptions discussed below, for several hundred years the Quaker leadership model is completely absent from the political and business world (NB, there have been two Quaker Presidents, though neither led in the Quaker leadership model described above. I am drawing a distinction here between individual people, and a model of organizational decision making).  For the past century there has not been a single prominent business venture governed in the Quaker leadership model described above. Open invitation here for anyone to help me find counter examples - please let me know.

Today, the most prominent institutions with Quaker leadership models are schools.  There are more than 100 Friends schools (the name used by Quakers, referring to the formal Religious Society of Friends) in America today, many of them thriving within their community, and nationally.

(It is worth pointing out here that while these schools model their governance on the Quaker principles above, there is still a singular point of authority in the Head of School role, and governance titles in the form of a Board of Trustees.  I contend that the leadership model described still holds despite these distinctions. Perhaps another view of the model is to say named leaders guide the organization with more constraint and with an intentionally patient, consultative leadership model than others in similar positions.  What becomes apparent in the sections below, however, there is big difference between ‘consultative’ leadership models from designated leaders and truly distributed models of organizational leadership)

Schools, of course, do not operate in the same globally competitive economic landscape.  Deliberative decision making processes that help faculty, parents and administrators all feel heard provide long term stability, and can serve as a competitive advantage in the commercial sense for school communities.

Why do Quaker leadership models thrive in education, but not in business today? Looking at the anomalies may help inform the rule.

Quaker Leadership Models in Early Capitalism

There is one period when Quaker leadership models thrived in business. In the first half of the 19th century, prominent Quakers founded companies such as Cadbury's Chocolate, Barclay's bank, and Clarks shoes. Joseph Wharton, founder Bethlehem Steele and benefactor of the University of Pennsylvania business school that bears his name today, was a Quaker.  Entire industries, such as the whaling in Nantucket, were led by Quakers with a Quaker leadership model.  Throughout the mid-Atlantic, many Quaker families became quite wealthy through successful business ventures. (More on “Quaker Capitalism” here.)

This period was a high point for stakeholder capitalism.  Corporations existed in the modern legal sense, but they were firmly embedded in their local communities.  Employers, employees and investors operated with a greater sense of responsibility toward each other.  This period predates globalization, modern capital markets, and shareholder maximization theory.

In such a setting, Quaker attributes of fair dealing and consensus building helped their organizations thrive. On the margin, potential employees and customers ascribed positive value to the Quaker model, helping those companies compete more effectively.

As the economy moved more efficient, capital and scale shifted to companies that prioritized shareholder return over balance. Quaker ideals are not well suited for such an economy.  For much of the past century, with a few notable exceptions,  distributed leadership models that balanced shareholders with other constituencies made businesses less competitive, as shareholder primacy led to more ‘efficient’ decision making processes.

Leadership in the Digital Age

Here's where it could get interesting.  We are now entering a period new period of capitalism. Two significant trends are converging  - the return of stakeholder capitalism, and the creation of digitally native organizations (DAOs, for decentralized autonomous organizations).

Could the Quaker leadership model be right for the new economy?

The argument is made in three parts

• Stakeholder capitalism is returning
• Technology allows for new organizational structures
• Quaker leadership principles align well to needs of the age

Stakeholderism.  Stakeholderism is defined as balancing the interests of any group other than shareholders when determining the best course for an organization decision. It is defined that way because stakeholderism arose in response to the dominant market theory of the past fifty years, shareholder maximization.

Shareholder maximization, most prominently associated with Milton Friedman, argues that companies must put shareholder views ahead of all others (employees, customers, the environment) and, importantly, when they do, everyone is better off.  The theory provides clarity. All interested groups, including employees, investors, and customers, understand how corporate leaders will weigh tradeoffs when making a decision: they will look to use their best judgement for the long-term interest of shareholders.

Today, for many, the theory feels flawed. Corporate leaders, capital markets and employees are all pushing away from shareholder maximization, toward an as yet undetermined new balance point between stakeholders.

In August 2019, the Business Roundtable, a collection of the largest companies in the world, formally adopted a move from shareholder primacy to a collective commitment to stakeholders: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

Exactly what 'deliver value' means was unspecified. That ambiguity is important, because without additional clarity investors, employees and customers all now must make their own decisions without advanced knowledge of how exactly corporate leadership will balance their interests in subsequent corporate tradeoffs.  No alternative decision making mechanism has been proposed.

In fact, by law (for Delaware C-corps, the vast majority of companies in the US today) and by custom corporate leaders still must act to benefit long term interest of shareholders (fiduciary responsibility), but now we all operate in a gray space of also ‘delivering value’ in some form to other constituencies.

For investors, over $30T (trillion, with a t) in capital is managed today by funds that incorporate environmental, social and governance (ESG) criteria into their investment mandates, with a global forecast of over $50T in four years.  That is to say, today more than 10% of all capital globally is managed with a stakeholder mindset, and the percentage is increasing every year.

Yet, clarity on what return tradeoffs, or even what metrics ESG funds should track to ensure they are beneficial to their environmental, social or governance goals remains unspecified.  Today, investors – and even the ESG fund managers themselves – do not have an operational framework for how precisely how ESG funds will tradeoff decision making to balance returns and ESG goals (more of my thoughts on this topic here).

Finally, employees continue to drive the push away from shareholder primacy.  44% of millennials and 49% of gen Zs said they have made choices over the type of work they are prepared to do and the organizations for which they are willing to work based on their personal ethics.

Yet, how those personal ethics are incorporated into corporation decision making is not clear. Employees may select their employer based on perceived alignment to personal ethics, but the mechanism for how their views then manifest in formal governance processes is not clear.

One could argue that there is no conflict between long term shareholder interests. (See this terrific 2020 paper from Lucian Bebchuk and Roberto Tallarita of Harvard Law School summarizing the argument). The ‘enlightened self-interest’ of Directors and Executives is to balance employee interests, for example, with other priorities up to the point at which the benefits of retaining top talent for long term shareholder value meet the demands of other spending priorities.

But even in its strongest form, the ‘long term alignment’ argument uses employees, customer preferences and environment/social goals as inputs by which shareholders can best achieve their long-term goals.  Meaning, each of the other interests is a lever by which decision makers weigh a mechanism to the ultimate objective function of maximizing long term shareholder returns.

That premise that is challenged with digitally native organizations.  What if there is no single identifiable group that is the primary long-term beneficiary of the organization?  How could individuals collaborate toward a collective purpose with greater balance between different constituencies?  What would the optimal decision making process be in such a scenario? Could such an organization compete, even thrive, in globally competitive markets?

Crypto, Blockchain and DAOs.  

Which brings us to crypto and DAOs. This tweet caught my attention:

As Chris observes, Web3, shorthand for digitally native organizations including but not limited to DAOs, provide the organizational structure to balance stakeholders in new ways.

But, let's step back before we get there. (those familiar with crypto skip can skip ahead).

When Satoshi Nakamoto released the bitcoin white paper on January 9, 2009, the pathway for new organizational business models opened. (helpful background reading for this section here, here, here and here)

Every transaction involving Bitcoin is recorded on a blockchain. A blockchain is a publicly accessible database, which anyone with an internet connection can access. No company, country, or third party is in control of the database. Anyone can become a part of it, which means any two people, anywhere in the world, can send bitcoin to each other without the involvement of a bank, government, or other institution.

While the bitcoin blockchain itself is limited, other blockchains today, such as Ethereum, are programmable, meaning anyone can write computer code into the blockchain. This allows for smart contracts to be written on the blockchain such that any two parties can trust each other when making agreements. The agreement is written into code, and the code is transparent and publicly verifiable, which means that any interested party can see exactly what logic a smart contract follows when it receives digital assets.

What Chris Dixon is referring to above as Web3 is the technology to write code in a globally accessible, world computer that no one owns but everyone can join.

One extension of this world is to create an organization on a blockchain.  A DAO (decentralized autonomous organization) has governance principles written on a blockchain.  Anyone can review how decisions are and will be made, and opt to join into the collective work of the organization with any level of effort or commitment desired. The rewards for the work provided are specified in the online smart contracts and are paid automatically upon completion of the work.

DAOs already exist to create art, invest in digital assets and manage currency transactions.  One could imagine a DAO, for example, owning the digital codebase for a ride-sharing application that connects riders to drivers like Uber does today.  The software and data would be owned not be a private corporation responsible to shareholders, but to a DAO.

As DAOs develop, the challenge of effective governance for such widely disbursed organizations becomes as critical question (background reading here and here).   If large numbers of people are earning their living in this part of our economy, and even larger numbers are benefiting from the products and services produced, then it is an important macro-economic question for us to consider:  What is the best model of governance for DAOs?

DAOs need trusted, consensus driven leadership that provides mechanisms to listen and balance the perspective of all constituents. A Quaker leadership model.

There is a tradeoff. Certainly, the modern corporate CEO can make a decision more quickly. While consultative leadership practices are increasing (as noted above in the Business Roundtable endorsement of stakeholderism), ultimately corporate executives and Boards have clear authority over final decisions.

The benefit of this structure is clarity, efficiency and alignment for all constituencies.  Whether just or not, it is helpful to know as an employee, investor or customer of Google, for example, that Sundar Pichai has responsibility for certain key decisions. One can see the decisions he has made in the past, read interviews with him and get a sense for his values and processes, and decide to entrust him (and his leadership team) with capital, time, employment, etc.

DAOs compete in an orthogonal dimension. They are open-source businesses - not requiring formal employee structures, with the associated burdens of recruiting, onboarding and training.  Capital comes from issuance of tokens, which can be sold directly to a diverse set of investors interested in the goals of the organization.  Work is coordinated and compensated through tokens as well, with developers, data scientists and others all collaborating through online tools.  Value is created, and distributed, through token based governance protocols.

As a result, DAOs can enlist global support from anyone with an internet connection. There is dramatically less friction for a contributor to a DAO to contribute, and get immediate financial compensation.  For a wide variety of reasons, Google, or any other traditionally organized company, could not compete on similar terms for that same technical talent – their onboarding process would involve interviews, security checks, training, HR, etc.

Let's use an example.  Facebook has an entirely product digital offering. The company makes money solely through the quality of these digital products produced by their internal software engineers and data scientists, led in their decision making by the product managers, executives and, ultimately the Board of Trustees (though in this particular case one person has voting control of the entire company).

While today there are over fifty thousand Facebook employees, the company was built initially by several hundred, then several thousand software engineers working and living in Palo Alto California.  All those employees had to interview, fill out forms, get a security badge and commute to the Facebook office at least five days a week to build the product.

DAOs allow for software engineers and data scientists to contribute their services to a global digitally native organization from anywhere in the world. The work is directed by community leaders, and compensation is paid in digital assets that provide value to the person whether they are in Palo Alto, Wichita, or Estonia.

And perhaps most importantly, all the intellectual property that those software engineers and data scientists create lives on a blockchain, public accessible and owned by all token holders of the DAO. Organizational data, encrypted for privacy, is available to developers anywhere, including competitors who may want to create a competitive offering.  The organizational structure operates as a check on potential greed of any one person, constituency or organization overall to harm to collective.

But here is the tradeoff -  how does a complex new product, involving investment of significant resources and innumerable tradeoff decisions and the contribution of hundreds of engineers get produced by such an organization?

In the classic corporate model, the process is straightforward.  A memo is written, a project spec is developed, a decision process moves up the chain of command until eventually an individual with sufficient enough designated authority says "Approved." That could be the CEO if the decision is meaningful enough, or someone up to ten corporate layers below depending on the magnitude.

There is clarity and, if well-functioning, speed in this process.  But, there isn't collective discernment. Ultimately judgement is placed in the mind of one person. As important, everyone in the organization is aware of that as well. It is not 'our decision.'  It is "the CEO decided."

How could a DAO look different with a model of Quaker leadership?  The initial steps would be the same - a memo, a project spec.  However, it could emerge from anyone in the community, freely posted in any number of open access communication forums like discord or discourse.

From there, the community has open access to comment, modify or endorse the proposal.  A 'sense of the meeting' emerges, over time, as the proposal gets traction with the community or not. There is transparency, open discussion and - if clerked well - respectful discourse about the proposal.

Clerks of the community, nominated and selected by a similar process to serve on a rotational basis for a period of time, would be responsible for convening discussions and deliberations. If there are rifts in the community, or particular constituencies that are not supportive, the Clerks will hold the responsibility to determine when their voices have been sufficiently heard but not supported by others such that those dissenters do not hold a veto right on the collective.

The decision and process is imprecise.  It is laborious and time consuming. Such an organization would not be nimble. But could it be more stable and long term effective?  Could an organization led in such a manner compete with traditional organizations in a global economy?

DAOs will succeed if the cultural and economic rewards of the organizational model, determined by the community decision making process, outweigh the coordination and speed costs.   In other words, will talented software employees globally prefer to work in a messy, deliberative community owned organization model where voices are heard, but processes are ‘inefficient’ in a traditional sense?   Will there be sufficient risk capital to finance these organizations without the clarity of authority in a single set of leaders?

Anyone paying attention to the energy, optimism and quality of the teams and capital entering the web3 space today should at least be open minded to the possibility of DAOs taking significant market share from traditional companies.

If that is right, we collectively need to advance our tools for understanding leadership in these organizations.  We need theory, case studies, best practices and debate on how web3 organizations can be both competitive and inclusive.

Perhaps, it sounds too far-fetched to imagine leading business organizations in the 21st century being governed by a splinter 17th century religious philosophy.  My arguments are here. My hope is this piece advances the conversation of leadership models in the digital economy.

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