Decentralize or Die

A simple Blockchain solution for helping centralized businesses democratize and stay relevant in a decentralized world — and why most won’t

Facebook, Uber, Starbucks, Wells Fargo, and other brand-compromised businesses can reinstate trust, rehabilitate their brands, and make better decisions by adopting a more democratic governance model. Blockchain-based consensus voting allows inclusion of any organization’s key stakeholders in governance, policy, and practice decisions.

The problem of centralization in corporate decisions

What happens when you try to run a company or resolve governance and practice issues by algorithm, network self-governance — or by top-down CEO decisions? Just ask Facebook, Theranos, Uber, Tesla, and a host of others. Despite having almost unlimited resources and technical smarts, they’ve still managed to offend public trust, invite regulatory intervention, and damage their brands — in some cases irreparably — through amateur-hour policy or practice missteps.

Are these CEOs stupid? Far from it. But in many cases their decision-making processes were isolated and out of touch with public, regulatory, and/or consumer concerns. Growth momentum and equity valuation drivers overshadowed judgment, and they confused access to data (user data, market data, growth metrics, revenues, scientific data, etc.) with access to the type of information they actually needed to make informed and sound decisions. Instead of engagement with users and stakeholders, they relied on internal projections, management assurances, or media hype.

Acquiescent boards contribute to the problem. Rather than providing the needed “adult supervision” that helps safeguard long-term shareholder rights and value, these boards have trouble saying No to a popular and charismatic CEO — especially one holding supervoting class shares.

Some network-driven businesses like Facebook, Snap, Uber, and Trip Advisor believed naively that their networks could govern themselves with Like buttons, user-ratings or reviews, and other user-feedback mechanisms — while the big revenue, security/privacy, and data exploitation issues remained siloed in the hands of founders and their often-complaisant boards. As long as users engaged and advertisers paid for that engagement, all was well — or so it seemed.

TripAdvisor allowed a small-time fake review writer to elevate his non-existent backyard restaurant, “The Shed,” to the number one ranked restaurant in London with just a few months of manipulated user reviews. While this example made for great fun, it also exposed the risks posed by bad decisions at powerful Web 2.0 companies. These risks are serious and beginning to show up in damaging ways, like the Facebook Cambridge Analytics breach or Uber’s cat-and-mouse tech games with regulators.

Brick-and-mortar businesses like Wells Fargo and Starbucks similarly thought that expensive PR, sensitivity training, and the occasional mea culpa could overwrite serious lapses in customer treatment and regulatory compliance.

Neither approach has worked. And the timing couldn’t be worse. Customers realize that small groups of investors and founders have made billions off their daily interactions, user data, and trust, while they as users (“the Product”) essentially have had no say in policy and little recourse in data breaches or privacy violations, not to mention any share in the revenues that their user data generates.

This is all about to change. People are starting to ask hard questions. Regulators are imposing fines (and in some cases considering criminal penalties), while users and investors are weighing competing platforms.

More significantly, blockchain startups will soon challenge even the most established centralized players. Facebook, Google, banks and brokers, big travel user review sites, and other industry behemoths that have built moats around their value extraction though captive-user network effects, appear to be potentially vulnerable for the first time since becoming the incumbents.

Which do you think users will choose?

Will they prefer to have their data hacked, lost, stolen, shared without permission, and exploited while having to navigate byzantine TOS fine print just to see how bad they’re being abused?

Or will they prefer network ownership rights, being paid for their “ad eyeballs” and data, benefiting from possible crypto-token rewards and appreciation, and being able to vote on the direction of their network?

It’s an easy choice, and users of social media and other platforms will be able to make it in the near future.

While there are some legitimate reasons for founder super-voting shares and other power control mechanisms, it’s likely we will look back at their implementation as the high-water mark of the centralized enterprise.

How can Web 2.0 and traditional businesses compete, stay relevant, and preempt obsolescence?

Businesses need to decentralize control and increase stakeholder participation in radical ways to stay competitive with emerging blockchain networks, which by design include decentralized governance, voting and ownership, and revenue or token sharing mechanisms.

Customer expectations for more democratic solutions will accelerate as decentralization takes hold, further pressuring incumbents to share the wealth — and the governance — or see their user bases mutiny. They need to retrofit their ownership and governance models. ASAP.

Waiting for competitor validation will make recovery impossible: people like new platforms and it’s next to impossible to get them back once a new platform’s network effects take hold.

We predict most businesses won’t try to adapt — at least not until it’s too late. The transition to a decentralized model means giving up easy short-term value extraction and founder/investor control, and requires a realization that they are no longer a centralized monopoly. This is financially and psychologically hard for any business used to dominating its space.

Incumbents’ reluctance to decentralize will open the door to new blockchain networks and DApps, just as inertia in the early days of the internet led to the rise of new players eager to seize opportunities presented by the new network infrastructure.

Let’s face it, even GE’s board thumb-sucked their way to the bottom. Access to broader stakeholder-based consensus could prevent similar value destruction in the future. Though not every decision can or should be based on consensus, stakeholder voting through systems like Rhubarb can empower stakeholders, provide a counterbalance to myopic decisions and, as with any democratic process, make organizations more accountable to a wider range of interests and opinion.

Aside from the benefits of decentralized decision-making, now that blockchain-based mechanisms facilitate auditable and frictionless voting and revenue-sharing it’s inevitable that consumers, shareholders, and the public will demand a greater voice in how organizations are run. Businesses must be proactive in adopting decentralization or face disruption.

Of course, many businesses are already aware of the nascent threats of the decentralization movement and some, including Facebook and Amazon, have projects underway to evaluate blockchain programs. But that was true of the web in the early days too — and it didn’t stop massive destruction of established players who overestimated brand loyalty and thought they could retain control of their customers by offering the same old same old thing and putting up a token web interface.

This will happen again with “pretend decentralization” from the establishment, where businesses offer trivial tokenization of their existing models without granting real value, control, or revenue sharing to their users.

How businesses can transition to decentralization through Rapid Consensus Decision Mechanisms (RCDMs)

Making the transition to decentralization isn’t as hard as it might seem for companies willing to become more inclusive in certain policy and governance decisions. For example, they don’t need to grant full control or include confidential or strategic planning to become more democratic, inclusive, and appreciated by their stakeholders.

Our experience with crowdsourcing consumer dispute resolutions on PeopleClaim, the largest online community-based mediation platform, gave us an understanding of how businesses can benefit when they cede some control to their users and the public to help resolve customer or employee disputes. The process invites the public and/or relevant domain experts to weigh in on the fairest resolution to a complaint. The result has been lower cost of resolution and increased customer retention, loyalty, and satisfaction, as well as reduced litigation risk.

So, while businesses may have had to give up a somewhat stacked deck, those that have used community dispute resolution at PeopleClaim have, by and large, found the advantages outweigh loss of control.

Not surprisingly, consumers find trial by public and their peers more equitable than by industry arbitration panels or traditional court processes, which tend to favor whoever has the deepest pockets and the best legal resources.

Our Rhubarb project takes this process further by using the blockchain to facilitate public jury voting. This provides a settlement-certain arbitrative process if both sides agree to be bound by the public jury’s consensus vote. Alternatively, disputants can use the consensus as validation of fairness or industry-expert opinion to further their negotiation toward a mutually acceptable settlement.

We believe this process can now be extended to include governance, policy, and practice decisions by businesses of all sizes. Public jury networks of stakeholders — consumers, employees, vendors, regulators, and others — can be tapped to discuss, iterate, and vote on important issues. Consensus findings will enable leaders to make better and more inclusive decisions.

Establishment businesses need to understand not only the risk of decentralized competitors, but also the benefits of decentralizing their own franchises.

The costs/benefits of decentralized decision processes

Costs

· Loss of some control

· Abandoning industry-dictated arbitration decisions may end up favoring consumers. (In our experience at PeopleClaim this isn’t necessarily the case. Consumers often provide restraints on awards to other consumers they feel are overreaching or playing the system. Public juries are not only cheaper and fairer but they are harder for the parties to argue against since they are made up of true peers or industry experts — not arbitrators potentially beholden to industry clients.)

· Less secrecy about policy and strategic decisions, which could compromise competitive position

· Risk of establishing a public, shareholder, or employee consensus that ends up being ignored anyway if the voting mechanism isn’t binding or adopted by management

Benefits

· Increased brand trust and loyalty by sharing decision-making with stakeholders

· Brand rehabilitation for businesses that have lost public or regulatory trust already, e.g., Facebook, Wells Fargo, Uber, Tesla, Starbucks

· Crowdsourcing of new ideas and solutions from diverse stakeholders

· Better and cheaper complaint and dispute resolution management. Reduction of litigation and class action risk. Better customer retention.

· Network effects that increase loyalty and form tighter bonds with customers, employees, and the public — even in businesses that don’t currently enjoy significant network-effect benefits

· Market differentiation vs. brands that don’t offer decentralized networking

· More intimate feedback that can aid product development, marketing, and branding

· Defense against emerging blockchain startups and competitors

· Counterbalance to other forms of centralization, such as super voting rights and equity ownership concentration, or other preference share rights.

Rhubarb’s platform gives businesses a way to adopt decentralization through an independent network of consensus decision-makers that includes shareholders, customers, employees and the public. We use token-based competitive gamification to engage and reward informed voters for “mining” the best consensus resolution to policy decisions, governance, and disputes.

Starbucks use case

Let’s take Starbucks’ “Third Place” policy as an example. Starbucks’ policy and decision process misfired when it came to treatment of “non-paying customers.” Store managers seemed to have had wide discretion, which failed when two African American entrepreneurs waiting for a business meeting were arrested and handcuffed for not leaving after being told they needed to buy something to use the facilities. To their credit, Starbucks responded proactively, shutting down stores to hold a day of sensitivity training, then announcing a policy whereby anyone can now use their stores without making a purchase.

But these decisions were largely made in a vacuum. By most accounts, little or no public input was harvested, and employees were retrained but not really invited to the decision process. Many customers feel the new policy is unfair and impractical in stores where many paying customers already must wait for a seat. We can commend Starbucks on their good intentions but not on their lack of inclusiveness in the decision process itself.

To see how the public really feels, Rhubarb has initiated a Public Fairness Assessment of Starbucks’ new policy. Anyone can weigh in and vote for one of four contributed options to the paying vs non-paying customer policy here.

You can also compete to earn RHUCoin by voting on how to fix Facebook here.

All voters win a share of our RHUCoin crypto tokens if their vote falls within the final winning consensus. Our goal is to use gamification to solve real problems and help businesses enter a new era of decentralized and democratic decision-making.

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Mark Deuitch is a reformed investment banker and founder of Rhubarb and the Future of Law on the Blockchain project. LinkedIn