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DAO Governance: Decentralised HR Management

A recent hot topic that tech progressives have been clamouring to figure out is how to truly decentralise the management of their modern web3 organisations. If you’re still asking ‘What’s a DAO though?’, go check out my previous article for context. Now that you have that covered, let’s get into the issue of their governance. However, to truly understand what is needed in a decentralised organisation, we will need some insight into how similar tasks are carried out in companies today.

How Is a Standard, Centralised Company Managed?

For the hypothetical purpose of this article, we’ll consider a standard dev shop or development agency as our business type. As a centralised corporation, the structure is very top-down and somewhat cyclical.

  • You have the project executives or rainmakers at the top, who bring in clients and maintain relationships with them.
  • Below the execs are the project managers, coordinating project resources to ensure that work is being done efficiently and targets are being hit.
  • Then of course, you have the developers and technicians, executing the work, testing and troubleshooting to create high-performing products.
  • According to the size of the company, you may also have marketers, whose job it is to communicate the purpose of the product and sell it to new potential customers.

The process then repeats itself as the executives move in to close the sale. In all this, key decisions are made by the company’s C-Suite leadership, with input from the executives. All other players are expected, more or less, to do what they’re told and get the job done.

The task of human resource management — sometimes taken on by an operations manager and, in a dev shop, often by the project managers themselves — is multi-fold. Let’s define the responsibilities of this role in some more depth.

  1. Hiring and firing — As with all centralised companies, the individual or department in charge of human resources undertakes the recruitment and onboarding process. They also typically help resolve any conflicts among persons in the organisation and enforce policies that may be grounds for termination of employees.
  2. Tracking incoming projects — Ops management or HR at a software development agency would be required to track the inflow and outflow of projects, particularly in regards to how human resources are allocated to it. It would be their responsibility to work with leadership on forecasting workloads and the required dev capabilities, then ensuring that the project teams are sufficiently staffed to meet expectations.
  3. Assigning projects and tasks — Once team members are fully onboarded, the resource manager would be expected to understand each of their skill sets well enough to assign them to tasks and projects they’re capable of and that will help them to grow in the right direction.
  4. Defining processes — The human resource department is also in charge of performance appraisals and deciding on compensation and benefit adjustments.
  5. People management — At the end of the day, the HR team is meant to put the human element into business. To most effectively do their jobs, these managers need to understand what motivates employees to do work and be able to make informed decisions on how to approach nuanced situations.

Translating Traditional HR Into a Decentralised Market

If we want to understand what human resource management will need to look like in a DAO governance model, we will have to consider how exactly a decentralised autonomous organisation functions. Built on blockchain, DAOs are intended to be user-owned and managed. The underlying protocol of the system is defined by the rules of the smart contracts developed and put in place by the founders. Interested blockchain users are typically encouraged to buy into the DAO through an initial coin offering (ICO) and are then granted a governance token, which allows them to vote on proposals put forward by any member. Once a proposal is passed, the terms are actioned through code in the smart contracts.

Now that we understand the intrinsic system of a DAO, let’s explore how human resource management would function within it.

  1. Hiring and firing — There would have to be a well-constructed smart contract policy that clearly defines who can be a member and under what terms someone can be fired. A special type of coin can be bought which will allow interested persons to enter the candidate pool, at which point their capabilities will be recorded to the ledger and made visible to the public. One major benefit of taking this task to the blockchain would be the elimination of hiring bias. Since all users are able to remain anonymous, decisions can be made purely based on qualifications and alignment with the smart contract’s job requirements. To maintain decentralised transparency, either decision would need to be put to a vote of the members. Alternatively, the services of a judicial DAO (on the judge-to-earn model) may need to be implemented to make certain judgement calls. With the latter direction, note — many argue that this method only reintroduces the third-party entity which the blockchain is often lauded for eliminating.
  1. Tracking incoming projects — In a decentralised system, proposals can be put out via smart contract for bid by potential clients and, by vote, the developer DAO can choose which projects to bid on and submit for. All these choices and outcomes will be saved on the blockchain ledger as a type of automated record-keeping.
  2. Assigning projects and tasks — Just as HR would function in a standard company to understand the abilities and workloads of all employees, a good HR system in a DAO will need to track and analyse the functions of each member. We can imagine an artificial intelligence system being used on top of data points stored on the blockchain to make connections between the work to be done and the available team members. Such a technique can serve as a real-time database, populated by a combination of member-submitted feedback and work data pulled from the ledger. AI, through machine learning, can over-time learn patterns and simulate outcomes, eventually becoming able to autonomously form high performing teams and efficiently match individuals and teams to suitable tasks and project types.
  1. Defining processes — One of the biggest reasons for broken trust in a centralised organisation is the lack of transparency in selections for promotion and in salary distribution. In a DAO, this information can all be laid out for not just the DAO members, but for the general public to see. Source code within smart contracts can clearly stipulate the actions or performance indicators that will result in promotion and outline the conditions under which salary increases will be given. This ensures that all members are fully aware of what it will take to get to the next step and will have no reason to question how others are making achievements — something that also plays into the next point.
  1. People management — Most people leave their jobs for one of the following reasons: they don’t feel like they make a difference, they don’t get proper recognition for their work, they aren’t learning anything new, they don’t like their coworkers or because they want to earn more money. Most of these are very subjective indicators that can be difficult to get a handle on, especially virtually. A good, automated system will need a way to track each of these factors as dynamic data points for each DAO member and propose a change if any combination of points remains stagnant, or dips below a set threshold, for a certain period of time. Machine learning will be an important part of developing this system as the contracts will need to gain some “understanding” of human reasoning, since emotion always has a part to play in the decisions workers make and their thought processes when wanting to make a change. This level of nuance still has not been perfected, but with the combination of AI and blockchain technologies, we may be a few steps closer.

The Future of DAO Corporate Governance

Clearly, fully removing central decision makers from a role as convoluted and decision-centric as human resource management poses endless questions and uncertainties for companies entering the decentralised space. This is evidenced by the current lack of information on how to make it happen and by the fact that every DAO that exists today still operates on an elementally centralised model. Besides the ability for all members to weigh in on the changes within the organisation by way of votes, much of the structure is indistinguishable (except by name) from a standard corporation. There are founders and chief officers, directors and ‘workstream leaders’ everywhere.

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