Apr. 2020 Vol. 3 No. 2
The Tao of Dao: Hardcoding Business Ethics
Adam J. Sulkowski*
The Taoist concept of “action without deliberation” helps frame the
implications of automation in corporate governance, especially in the
context of business entities that engrain operating rules into self-executing
computer code. Taken to an extreme, it is possible to encode all operating
rules of a group of individuals, creating a so-called decentralized
autonomous organization (DAO). Businesses are using the technologies
underlying a DAO – blockchain and smart contracts – to limit human
discretion by “hardcoding ethics.” This article is the first to use this phrase,
to explain how Taoism may assist in understanding DAOs and their
components: blockchain and smart contracts, and to explore why the
nascent trend of hardcoding ethics is significant to any organization and its
managers and stakeholders.
TABLE OF CONTENTS
ABSTRACT ......................................................................................... 146
TABLE OF CONTENTS ........................................................................ 146
INTRODUCTION .................................................................................. 147
I. TENETS OF TAOISM ........................................................................ 150
II. THE TAO OF DAO, AND THE UNDERLYING TECHNOLOGIES OF
BLOCKCHAIN AND SMART CONTRACTS ................................ 151
III. HARDCODING ETHICS: COULD ANY BUSINESS AUTOMATE DOING
THE RIGHT THING? ................................................................. 155
A. How to Hardcode Ethics ................................................. 155
B. Steps Businesses Can Take to Hardcode Ethics ............. 156
IV. FLIPPING THE HIERARCHY IMPLIED BY CARROLL’S PYRAMID OF
CSR ........................................................................................ 157
V. THE BUSINESS PERSPECTIVE: IS HARDCODING ETHICS DESIRABLE
* Associate Professor of Law & Sustainability, Babson College. B.A., 1996, College
of William & Mary; M.B.A., 1999, Boston College, Carroll School of Management; J.D.,
2000, Boston College Law School. The author would like to thank Mystica Alexander,
Associate Professor at Bentley University, for her assistance, and Alicia Hennig, Associate
Professor of Business Ethics at Southeast University, Nanjing, for taking the time to offer
corrections, cautionary advice, and clarifications related to Taoist tenets in the context of
business ethics; the author is solely responsible for characterizations, interpretations, and
application of these ideas that the reader may find questionable or objectionable, and
welcomes contact from the reader to further discuss the ideas contained herein.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 147
AS A VOLUNTARY SELF-GOVERNANCE OR "SOFT LAW"
MECHANISM? ......................................................................... 159
VI. THE REGULATORY PERSPECTIVE: WOULD HARCODING ETHICS BE
AS A MECHANISM OF GOVERNMENT REGULATION OF
BUSINESS? .............................................................................. 163
VII. THE ETHICAL PERSPECTIVE: WEIGHING THE IMPLICATION OF
WU-WEI FOR BUSINESS AND THE DUTY OF ALIGNING ONE'S
PATH IN BUSINESS WITH THE NATURAL ORDER ................... 166
CONCLUSIONS ................................................................................... 169
“[D]on’t be evil[.]”
Originally the first words of the preface of
Google’s code of conduct,
this phrase seems like a simple and
straightforward founding ethos, yet the company’s core daily function
(providing free services in exchange for selling insights on users), is the
fundamental business model that underlies modern privacy scandals.
This is but one clear and recent example of a company having a
pithy, easy-to-grasp, and harmless (though not actively benevolent),
founding aspiration whose eventual daily operations illustrated the
compromise unintentionally implied by Archie Carroll in his pyramid of
ALPHABET, GOOGLE CODE OF CONDUCT (July 31, 2018),
Alphabet, the holding company of which Google is now a subsidiary, did not retain this
phrase in its code of conduct. See ALPHABET, CODE OF CONDUCT,
https://abc.xyz/investor/other/code-of-conduct/ (last updated Sept. 21, 2017). Some authors
have suggested that the slogan was entirely dropped. See David Mayer, Why Google Was
Smart To Drop Its “Don’t Be Evil” Motto, FAST CO. (Feb. 9, 2016),
motto (citing Alistair Barr, Google’s ‘Don’t Be Evil’ Becomes Alphabet’s ‘Do the Right
Thing’, WALL ST. J. BLOG (Oct. 2, 2015, 7:59 PM)),
vanishes/). Others have expressed the opinion that Google’s code of conduct has
understandably evolved in the wake of controversies. See Roger Montti, Google's "Don't Be
Evil" No Longer Prefaces Code of Conduct, SEARCH ENGINE J. (May 20, 2018),
Data privacy scandals were epitomized by Facebook’s sharing of user data with
Cambridge Analytica, which used the information to attempt to influence the 2016
American presidential election. See Issie Lapowsky, How Cambridge Analytica Sparked the
Great Privacy Awakening, WIRED (Mar. 17, 2019, 7:00 AM),
also faced criticism for its approach to user data. See Ian Bogost, What Is 'Evil' to Google?
Speculations on the Company's Contribution to Moral Philosophy, THE ATLANTIC (Oct. 15,
Strictly speaking, “don’t be evil” is not benevolent, as it is not actively positive. Rather, it
merely tries to prevent harm. For effective corporate responsibility, we need to go beyond
“do no harm.” See Florian Wettstein, For Better or For Worse: Corporate Responsibility
Beyond “Do No Harm”, 20 BUS. ETHICS Q. 275, 275, 278 (2010).
148 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
corporate social responsibility (“CSR”).
In reality, managers’ perceived
obligations to make profits can relegate following laws, curbing harms, and
generating net benefits to stakeholders to the status of disposable secondary
or tertiary afterthoughts. Gaps between an organization’s explicit benevolent
founding aspirations and its members’ deliberately deadly actions are
phenomena as old as humanity. However, the collective scale, efficiency,
and power of modern business organizations to impact people and natural
ecosystems elevates the gap between ethical aspirations and actions in our
present time to the scale of an existential crisis in our civilization.
But what if core ethical values were hardwired, or, more accurately,
into the DNA of a business?
What if, instead of negotiable (and
often voluntary and disposable) principles, whose obedience are subject to
the whims of fallible and corruptible people, founding ethical aspirations
were instead programmed as inviolable duties?
Enter the era of Digital Autonomous Organizations (“DAO”) and its
component technologies of blockchain and smart contracts. As will be
explained in greater detail below, these technologies are beginning to replace
conventional management structures, so that human discretionary decisions
are replaced by computer code that is difficult to alter.
This paper builds
upon the extant scholarship of this new reality.
It specifically contributes
to the conversation concerning ethical parameters that could be among the
self-executing rules, barring or requiring some actions and triggering
consequences in the event certain harms are caused.
This paper uses concepts from Taoist philosophy to frame two
implications of hardcoding ethical rules of an organization. The first is the
central theme in philosophical Taoism of action without deliberation (wu wei
無為), and the second is that actions should be aligned with the natural order,
as will be elaborated upon below. It should be acknowledged that adopting
terms outside the context of their culture has limitations and poses a risk of
accusations of misappropriation. However, on balance, this paper will
suggest that these core ideas of Taoism provide a conceptual lens to help
identify and discuss novel aspects of business ethics in the present era of
See infra, Section IV and accompanying notes.
See infra, Section VII and accompanying notes.
A hardcode is the part of a computer program which cannot be altered while the program
is running, even if the software is otherwise adapted. Definition - What does Hardcode
mean?, TECHOPEDIA, https://www.techopedia.com/definition/16934/hardcode (last visited
Feb. 9, 2020). It is typically reserved for unchanging constant values, such as the speed of
While the initialism of deoxyribonucleic acid (“DNA”) is intended here as a metaphor for
the collected policies of a corporation, figurative corporate DNA may in the future be stored
on actual synthesized DNA; data scientists are experimenting with encoding and storing
data on human-engineered DNA structures because its double helix structure is a robust and
efficient system for storing information. See Yaniv Erlich & Dina Zielinski, DNA Fountain
enables a robust and efficient storage architecture, 355 SCI. 950, 950 (2017).
See infra, Section II and accompanying notes.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 149
This paper also investigates the benefits and drawbacks of
hardcoding ethical rules from a business, legal, and ethical perspective in
sections V-VII. More specifically, two broad models of ethical reasoning are
employed: deontological and consequential; and certain limitations and
necessities based in the natural sciences are acknowledged.
concludes that, while there are a variety of foreseeable objections,
hardcoding ethics is a viable tool for use in the public law arena as well as
for “soft law” purposes of self-regulation. As is the case in other contexts,
the failure to adopt a viable tool to prevent or mitigate the occurrence of
illegalities and harms may eventually represent a deliberate failure to
exercise reasonable care. It is a foreseeable possibility that, whether through
government mandate or a mix of stakeholder demands, proactively
hardcoding ethical action-without-deliberation will become a reasonable
standard of care for business managers.
It bears mention that others have, independently of this author, used
the word, Tao, and acronym, DAO, in article titles, but they have not actually
explained the connection between Taoist themes and the operation of DAOs;
in fact, both extant essays are devoid of any explanation of Taoism.
Similarly, “hardcoding ethics” is terminology that has appeared at least once
before in a publication title, but the essay proposed a research agenda related
to automating existing practices in the financial technology space,
than proposing how ethical standards could be deliberately automated to
improve outcomes in any industry.
Therefore, this essay, to the best knowledge of the author, applies a
novel means of framing the potential of blockchain-based automation of
business processes and examining the feasibility and desirability of assuring
legal compliance and adherence to ethical commitments.
See infra, Section VII and accompanying notes.
See Qayyum Rajan, Ethereum & the Tao of the Dao, HACKER NOON (Jan. 13, 2018),
https://hackernoon.com/ethereum-the-tao-of-the-dao-fa561b2f6b54; see also David J.
Shakow, The Tao of The DAO: Taxing an Entity That Lives on a Blockchain (Univ. of Pa.
Law Sch. Inst. for Law & Econ., Research Paper No. 18-23, 2018),
Brett Scott, Hardcoding Ethics Into Fintech, FIN. & THE COMMON GOOD/BIEN COMMUN
44 80 (Jan. 2018), http://www.ethicsinfinance.org/wp-content/uploads/2018/01/Brett-Scott-
The hardcoding of business ethics presents a context where scholarship of law and moral
philosophy can both help inform the arena of practice and is therefore the type of research
focus that has long been advocated by law faculty in business schools. See Thomas W.
Dunfee, On the Synergistic, Interdependent Relationship of Business Ethics and Law, 34
AM. BUS. L.J. 317, 318 (1996) (“In the tactical academic field of commercial law, seemingly
far removed from the strategic battles of Olympian philosophers and jurisprudential scholars
debating the relationship between morality and law, the potential for a synergistic
interaction between applied ethical concepts and doctrinal research is evident.”).
150 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
I. TENETS OF TAOISM
Taoism is a Chinese philosophy that values living in harmony with
literally “the way” or “the path,” and also “the One, which is
natural, spontaneous, eternal, nameless, and indescribable” (traditional and
simplified Chinese: 道, pinyin: Dào).
Taoism’s prehistoric origins between
3,000 and 700 BCE likely grew from shamanic traditions purporting to,
among other things, heal, foretell the future, and affect natural phenomena
like the weather.
Over centuries, the typical trappings of organized
religion, such as priestly classes, liturgical ceremonies, deities, and
splintered sects, have waxed and waned, but certain central themes have
remained constant and distinct in the Taoist philosophical tradition. Taoism
has interacted with Confucianism and Buddhism and exerted an influence on
Chinese culture, and to some extent well outside of China, into the present
The central tenet of Taoism, wu-wei (traditional Chinese: 無爲,
simplified: 无为, pinyin: wú wéi), has been translated to “action performed
Wei connotes intention or deliberation and wu
conveys the meaning of “lacking” or “without,” resulting in the alternative
translations “non-action,” “effortless action,” or “action without intent.”
This begs the question of what is the correct path that one should
follow in acting without deliberation. It bears re-emphasizing both Tao’s
meaning as “the way” and the fact that it denotes the unnamable
pattern, and substance that underlies everything in the universe.
be on the correct path is to act in a way that is consistent with nature. As one
For a concise introduction to Taoism from an expansive historical perspective, see ALAN
WATTS, THE WAY OF ZEN 23–24 (1999).
Min Young Jin, Contributions of Bible Translation for Ecumenism in Asia, in ASIAN
HANDBOOK FOR THEOLOGICAL EDUCATION AND ECUMENISM 153 (Ruth Padilla DeBorst ed.,
2013). Taoism has sometimes been transliterated as Daoism and both pronunciations are in
common usage in the English language, yet Daoism with a “d” is more faithful to the
original Mandarin Chinese pronunciation. LEONIE MCKEON, TAME THE TIGER: NEGOTIATING
FROM A POSITION OF POWER 8 (2017). For our present purposes, Taoism with a “t” helps
differentiate Tao from DAO.
EVA WONG, TAOISM: AN ESSENTIAL GUIDE 10-16 (2011).
Emily Mark, Taoism, ANCIENT HISTORY ENCYCLOPEDIA (Feb. 22, 2016),
https://www.ancient.eu/Taoism/. For an example of Taoist themes in popular culture, see
BENJAMIN HOFF, THE TAO OF POOH (1982). See also OLIVER BENJAMIN, THE TAO OF THE
Li-Jun Ji & Emily Chan, Chinese Thinking Styles and Religion, in RELIGIOUS COGNITION
IN CHINA: “HOMO RELIGIOSUS” AND THE DRAGON 47 (Ryan G. Hornbeck et al. eds., 2017).
ROBERT E. VAN VOORST, ANTHOLOGY OF WORLD SCRIPTURES 172 (7th ed. 2011).
Alan Watts prefers not to even try to offer a translation, calling it a “nonsense syllable.”
ALAN WATTS, WHAT IS TAO? 38 (2000).
HERRLEE G. CREEL, WHAT IS TAOISM? AND OTHER STUDIES IN CHINESE CULTURAL
HISTORY 2–3 (1970).
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 151
might expect given its Naturalist origins, Taoism asserts that one must place
their will in harmony with the natural order.
Taoism somewhat shares Confucianism’s core value of harmony,
although Taoism emphasizes harmony with the natural order while
Confucianism involves social harmony, and Taoism lacks Confucian
dedication to rituals and rigid approach to social structure.
Besides the core
themes of wu-wei and aligning action in harmony with nature, other
generally shared values of Taoism with Confucianism include spontaneous
and humility, modesty, and curbed desires
(or not placing oneself either at the center, or above, the order of the universe
As we will see, we can find echoes of these themes in the adoption
of new automation technologies, as well as the professed commitments of
some companies to simple, uncontroversial first principles that could place
their businesses in a more harmonious (and less narrow and self-damagingly
anthropocentric) relationship with the world.
II. THE TAO OF DAO, AND THE UNDERLYING TECHNOLOGIES OF
BLOCKCHAIN AND SMART CONTRACTS
The essential idea of a DAO is to automate all of the agreements
necessary to coordinate a group of individuals to accomplish the work of an
organization – in other words, to replace the centralized overhead of a
conventional business with code.
Some have cautioned that not all
decentralized structures are truly autonomous unless control is ceded to code,
as opposed to human control.
However, there is general consensus that the
DARRELL J. FASCHING & DELL DECHANT, COMPARATIVE RELIGIOUS ETHICS: A NARRATIVE
APPROACH 35 (2001).
ELIZABETH POLLARD ET AL., WORLDS TOGETHER, WORLDS APART 168 (2011).
See J. ZAI, TAOISM AND SCIENCE: COSMOLOGY, EVOLUTION, MORALITY, HEALTH AND
MORE 127 (2015).
See N. J. GIRARDOT, MYTH AND MEANING IN EARLY DAOISM: THE THEMES OF CHAOS
(HUNDUN) 56 (1988).
This last virtue stands in stark contrast to the American legal system’s explicit
anthropocentrism. See Adam J. Sulkowski, Ultra Vires Statutes: Alive, Kicking, and a
Means of Circumventing the Scalia Standing Gauntlet in Environmental Litigation, 24 J.
ENVTL. L. & LITIG. 75, 116–17 (2009) [hereinafter Sulkowski, Ultra Vires].
For example, Paul Polman is commonly identified as an example of a business leader
authentically committed to innovation and generating societal benefits while eliminating
environmental harms. See Leila Abboud, High-flying Dutchman Polman divided opinion but
leaves positive legacy, FIN. TIMES (Nov. 29, 2018), https://www.ft.com/content/565399e4-
f3f9-11e8-9623-d7f9881e729f. As the CEO of Unilever, he reportedly told students in 2016,
“I always say I represent one of the biggest NGOs.” Id.
Vitalik Buterin, DAOs, DACs, DAs and More: An Incomplete Terminology Guide,
ETHEREUM BLOG (May 6, 2014), https://blog.ethereum.org/2014/05/06/daos-dacs-das-
Laila Metjahic, Deconstructing the DAO: The Need for Legal Recognition and the
Application of Securities Laws to Decentralized Organizations, 39 CARDOZO L. REV. 1533,
152 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
core component technologies described below – self-executing agreements
and automated record-keeping – can allow an organization to function with
minimal human managerial discretion, deliberation, and control.
While the history of DAOs is limited,
have begun to adopt some of the underlying technologies: namely,
blockchain and smart contracts.
This development promises to eliminate
fraud, theft, and imperfect human discretion by automating processes.
Blockchain is essentially a form of record-keeping,
information is digitally stored, constantly available, and can be updated at
multiple nodes across a network. For this reason, it is also known as a
distributed ledger technology (“DLT”).
Data on public blockchains is
visible to anyone, with no single central authority controlling or owning the
In contrast, most businesses prefer to adopt private blockchain
records, otherwise known as permissioned ledgers, because they can control
Building upon this automated record-keeping, smart contracts are a
series of if-then triggers that allow for the pre-programmed, automated
execution of agreements.
Hence they are often described as self-executing
A DAO makes use of a set of smart contracts to coordinate the
Id. at 1544.
For a description of developments related to three DAO platforms, see Usha R.
Rodrigues, Law and the Blockchain, 104 IOWA L. REV. 679, 717–20 (2019).
Heather Clancy, The Blockchain's Emerging Role in Sustainability, GREENBIZ (Feb. 6,
2017), https://www.greenbiz.com/article/blockchains-emerging-role-sustainability; but see
Steve Banker, Blockchain in the Supply Chain: Too Much Hype, FORBES (Sept. 1, 2017),
much-hype/#4e4510f9198c (suggesting that while this technology has the potential to
prevent thefts and combat cybersecurity issues, it is still relatively new and likely to
experience several challenges while maturing).
See Adam Sulkowski, Blockchain, Business Supply Chains, Sustainability, and Law: The
Future of Governance, Legal Frameworks, and Lawyers?, 43 DEL. J. CORP. L. 303, 305
(2019) [hereinafter Sulkowski, Blockchain].
See Marco Iansiti & Karim R. Lakhani, The Truth About Blockchain, 95 HARV. BUS. REV.
119, 120 (Jan. – Feb. 2017).
See Carla L. Reyes, If Rockefeller Were a Coder, 87 GEO. WASH. L. REV. 373, 379–80
Michèle Finck, Blockchains: Regulating the Unknown, 19 GER. L.J. 665, 670 (2018).
See id. Due to the business retaining control and access, private blockchain applications
are arguably not as credible to outside observers as public blockchain records, but for
internal purposes still offer advantages over conventional data tracking systems. As will be
further explained below, this perceived credibility gap has been corrected by allowing
independent third parties such as regulatory agencies access to private blockchains.
Examples of applications include Hyperledger from Linux Foundation and Corda from the
R3 financial services consortium. See generally Todd Benzies, Tech and Banking Giants
Ditch Bitcoin for Their Own Blockchain, WIRED (Dec. 17, 2015, 12:01 AM),
See Max Raskin, The Law and Legality of Smart Contracts, 1 GEO. L. TECH. REV. 305,
See Kevin Werbach & Nicolas Cornell, Contracts Ex Machina, 67 DUKE L.J., 313, 319–
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 153
activity of people in the way that a conventional business does, replacing the
business entity with a nexus of contacts.
A conventional business organization, in contrast, is neither
decentralized nor autonomous. In contrast, a hierarchy of individuals in a
centralized system ultimately exerts command-and-control authority, and
decisions at various levels require human discretion. Short of completely
abandoning a centralized structure of human authority, a conventional
business may nonetheless adopt aspects of the ethos, technology, and
resulting benefits of some decentralization and automation of select
This began to happen in supply chains and financial record
McKinsey & Company released a report in early 2017 that: (1)
predicted that blockchain will have a material impact on commerce between
2020 and 2022; (2) identified several dozen nascent use cases; and (3)
concluded that most of its initial $80-110 billion impact would be related to
record-keeping in both the finance and insurance industries.
Before we begin a discussion of how decentralization and
automation of business processes could relate to business ethics, it is
important to clarify the benefits that these trends could potentially deliver.
The first is transparency.
Decentralization of record-keeping allows for
distributed access to information.
Trust that the information has not been
altered is enhanced when access to the network is either fully public or
shared with some regulatory agency or stakeholders outside of the company
that keeps its records on a blockchain.
Besides limiting the potential for
fraud in financial information tracking, this also enhances trust in the context
of supply chains.
Finally, automation of contracts allows for the self-
execution of promises – commitments to act or comply with a standard
For a review and critique of the conceptualization of a firm as a nexus of contracts, see
generally William W. Bratton, Jr., The "Nexus of Contracts" Corporation: A Critical
Appraisal, 74 CORNELL L. REV. 407 (1989).
See Laura Shin, How The Blockchain Will Transform Everything From Banking To
Government To Our Identities, FORBES (May 26, 2016, 8:00 AM),
See Sulkowski, Blockchain, supra note 34, at 305–06.
MCKINSEY & CO., FED. ADVISORY COMM. ON INS., BLOCKCHAIN TECHNOLOGY IN THE
INSURANCE SECTOR 2, 6, 9 (Jan. 5, 2017),
See Scott J. Shackelford & Steve Myers, Block-by-Block: Leveraging the Power of
Blockchain Technology to Build Trust and Promote Cyber Peace, 19 YALE J.L. & TECH.
334, 340, 375 (2017).
See id. at 355.
See id. at 339–40, 355, 360, 364–65.
See, e.g., Phil Taylor, EY Partners with EZLab on Blockchain Wine Security Project,
SECURING INDUSTRY (Apr. 18, 2017), https://www.securingindustry.com/food-and-
154 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
trigger consequences without the potentially flawed discretion of a human
Put simply, any information that can be quantified or reduced to a
yes/no statement can be stored on a blockchain-enabled application.
on this data, any decision triggers that can be reduced to if-then statements
can be automated by a smart contract.
Some scholars, such as Aaron Wright
and Primavera de Filippi, have argued that the array of self-enforcing
commitments and rules could create a new body of law that they have named
Lex Cryptographia, a modern day analog to Lex Mercatoria created by
merchants in earlier eras.
Others, such as Kevin Werbach, have argued that
the body of rules enabled by blockchain and smart contracts will still need
the conventional mechanisms of dispute resolution and enforcement
provided by the existing legal system.
Regardless, the overall foreseeable
trend in business operations will be toward automation, including those that
until now have necessitated recurring human interventions.
Whether it is in the context of a pure DAO or the more limited scope
of a conventional corporation employing blockchain-based applications,
Taoist themes are useful for framing and understanding the implications of
this movement towards greater automation. First, by eliminating human
discretion over a daily operating decision, businesses will manifest “action
without deliberation,” meaning regular and repeated human decision-making
will be replaced by pre-set triggers in programmed code. Second, inasmuch
as an individual or group of individuals decide upon values and the
expression of those values in a series of if-then conditions in code, they are
setting their organization on a path. All paths, including those in the business
world, carry with them ethical questions and impacts, be they intended or
unintended consequences, core to the business activity or a side effect, or a
benefit or a harm to someone or something.
Conventionally, business leaders have published codes of ethics to
guide individuals in their organizations when making decisions. We are now
entering an era when these values, if they can be expressed in the language
of conditions and decision triggers, can be hardcoded into programs. The
automation of ethically loaded sequences of pre-programmed decisions
should therefore be a cause for contemplation of the values with which a
chosen path is aligned. The balance of this paper will now discuss how ethics
See Werbach & Cornell, supra note 40, at 316 n.10, 317–19.
See The Great Chain of Being Sure About Things, The ECONOMIST (Oct. 31, 2015),
See Konstantinos Christidis & Michael Devetsikiotis, Blockchains and Smart Contracts
for the Internet of Things, 4 IEEE ACCESS 2292, 2296–97 (2016),
See Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and the
Rise of Lex Cryptographia, SSRN ELEC. 4, 44, 48 (Mar. 12,
See Kevin Werbach, Trust, But Verify: Why the Blockchain Needs the Law, 33 BERKELEY
TECH. L.J. 487, 489, 495–96, 543 (2018).
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 155
could be hardcoded and the desirability of automating processes such as to
eliminate the risks of recurring human deliberation.
III. HARDCODING ETHICS: COULD ANY BUSINESS AUTOMATE DOING THE
This section will proceed as follows. First, this article will outline
how hardcoding ethics could work, starting with basic principles. While this
is not a technical paper, this article will probe the concept deeply enough to
understand better how it would be deployed, such as to have a more informed
discussion of its merits and limitations from business, legal, and ethical
perspectives. Second, this article will explore how broadly this concept could
be applied, building upon how existing conventional corporations are
embracing aspects of automation.
A. How to Hardcode Ethics
There are at least three ways, broadly speaking, that ethics could be
automated. First, mandating obligatory actions, the equivalent of “thou
shalt.” Second, barring unacceptable actions, or “thou shalt not.” Third,
requiring offsets, whereby causing a harm triggers an action that causes a
benefit, such that the amount of net harm totals zero, or whereby benefits
It is easy enough to imagine the first two rules being encoded. They
already have been. In the world of investing, automated buy, sell, or hold
decisions are already a widespread fact-of-life.
Flash trading takes this idea
to an extreme.
Triggering sell-or-hold-or-buy decisions based on previously
determined price points is a close analog to, for example, programming a
blockchain-based smart contract to purchase, or refuse to purchase, a
diamond or quantity of Coltan based on whether the material has been
certified as having been extracted without the use of coerced or child labor.
Certification schemes already exist in a myriad of supply chain contexts,
ranging from proof-of-provenance to the use of organic practices, to the
adoption of fair labor practices.
Slightly less intuitive, but already an existing practice, is the
phenomenon of offsetting or cap-and-trade mechanisms, both of which aim
to effectively neutralize a side effect such as pollution.
See Silvia Amaro, Sell-Offs Could be Down to Machines that Control 80% of the US
Stock Market, Fund Manager Says, CNBC (Dec. 5, 2018, 6:23 AM),
See MICHAEL LEWIS, FLASH BOYS: A WALL STREET REVOLT 270 (2014).
See Tilde Herrera, Navigating the Wilderness of Green Business Certifications, GREENBIZ
(July 13, 2008, 5:00 PM), https://www.greenbiz.com/news/2008/07/13/navigating-
See Cap and Trade FAQs, NICHOLAS INST. FOR ENVTL. POLICY SOLS., DUKE U.,
156 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
companies including General Motors, Delta Airlines, Lyft, and Expedia
voluntarily buy carbon offsets as a part of their carbon emissions reduction
A variation of this has been adopted by airlines; some offer
passengers the option of purchasing offsets for the share of GHG resulting
from their travel.
As will be described, governments have supported cap-
and-trade emission trading schemes that accomplish the same goal of
allowing pollution so long as it is offset.
There is no reason, in theory, that a business entity could not
hardcode their offset commitments. The idea of automating offsets could
help imbue fresh power and relevance into the idea of sustainability
reporting, which is the practice of measuring and publishing impacts on
society and the environment. Even one of sustainability reporting’s early
evangelists has “recalled” the idea in a Harvard Business Review article,
explaining that the idea had failed to adequately disrupt business as usual.
Rather than sometimes functioning as a meaningless dashboard, or worse a
misleading greenwashing public relations exercise, companies could
program a set of “if-then” triggers to automate purchasing offsets for specific
B. Steps Businesses Can Take to Hardcode Ethics
This leads us to a brief technical tangent to discuss more precisely
how to hardcode ethics before we discuss what entities could adopt this
practice. The key reason that one could question the credibility of
blockchain-enabled applications deployed by conventional corporations is
that access and control is still centralized – the organization’s leadership
ultimately can change the code, alter records, and control access.
solution to this is fairly simple. Access – even one node – can be shared with
an independent and credible third-party observer such as a government
regulatory agency, so that attempts to illegitimately alter records would be
Examples of this in practice include the Securities Exchange in
Sydney and the Depository Trust Clearing Corp.
Hyperledger and R3CEV
represent similar improvements over conventional permissioned ledgers.
See, e.g., Katie Fehrenbacher, Lyft is Buying Carbon Offsets to Cover All of its Rides,
GREENBIZ (Apr. 19, 2018, 6:01 AM), https://www.greenbiz.com/article/lyft-buying-carbon-
See IATA Carbon Offset Program, INT’L AIR TRANSP. ASS’N,
See John Elkington, 25 Years Ago I Coined the Phrase “Triple Bottom Line.” Here’s Why
It’s Time to Rethink It, HARV. BUS. REV. (June 25, 2018), https://hbr.org/2018/06/25-years-
See Sulkowski, Blockchain, supra note 34, at 306–07.
See R3 Unlocks Regulatory Reporting on Corda with Financial Conduct Authority and
Two Global Banks, R3 (Sept. 12, 2017), https://www.r3.com/news/r3-unlocks-regulatory-
See, e.g., David Yermack, Corporate Governance and Blockchains, 21 REV. FIN. 7, 12
Id. at 16.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 157
Therefore, the question posed in this section’s subheading is
partially answered by these examples: automation is being adopted in
There is nothing about the technologies described above that
prevents them from being used by any organization – including but not
limited to conventional business corporations – to hardcode ethical values.
To offer one more example, blockchain technology has reportedly
functioned well in the context of inventory authentication in the timber
industry, in which illegal sales are estimated to total $51-152 billion
This article will now move on to consider why this is significant. It
will consider how the phenomena above may help overcome the existential
crisis of business and civilization in the early 21st Century, and then consider
whether this is desirable from the business, legal, and ethical perspectives.
IV. FLIPPING THE HIERARCHY IMPLIED BY CARROLL’S PYRAMID OF CSR
It is useful to acknowledge the current realities in business before
we weigh the desirability of hardcoding ethics. Archie Carroll’s Pyramid of
Corporate Social Responsibility (“CSR”) provides a classic, simple, and
useful model for understanding the realities of ethical compromises in the
business world that together constitute the defining existential crisis of our
It should be highlighted immediately that my use of Carroll’s model
differs slightly from what he originally attempted to communicate, as
elaborated upon below. It is also important to note that a plain reading of
Carroll’s CSR pyramid does not reflect the hierarchy of duties described in
state laws that create the ability to establish corporations, as also discussed
Nor, as will become obvious in a moment, does it represent what
one would want in a neighbor or any entity in society. Rather, this frequently
succeeds, for our purposes, in explaining reasons for
recurring managerial scandals, and helps provide context for discussing the
implications of hardcoding ethics.
Carroll’s model seems to imply a clear hierarchy of duties,
See Jochem Verberne, How Can Blockchain Serve Society?, WORLD ECON. F. (Feb. 1,
Boris Dudder & Omri Ross, Timber Tracking: Reducing Complexity of Due Diligence by
Using Blockchain Technology, SSRN ELEC. 1, 3 (Aug. 8, 2017),
Archie B. Carroll, The Pyramid of Corporate Social Responsibility: Toward the Moral
Management of Organizational Stakeholders, 34 BUS. HORIZONS 39, 42 (1991).
Others have critiqued the implication of Carroll’s model. See Gerlinde Berger-Walliser &
Inara Scott, Redefining Corporate Social Responsibility in an Era of Globalization and
Regulatory Hardening, 55 AM. BUS. L.J. 167, 213-214 (2018).
According to Google Scholar, Carroll’s 1991 Business Horizons article featuring his
pyramid model has been cited 11,114 times as of February 8, 2020. See Carroll, supra note
158 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
represented by a pyramid.
The foundational duty is to “[b]e profitable. The
foundation upon which all others rest [sic] (economic responsibilities).”
Above that, follows the duty to act lawfully (legal responsibilities).
then do we arrive at the aspiration to be fair and avoid harm (ethical
At the top level, there is the consideration of how the firm
can benefit stakeholders (philanthropic responsibilities).
Carroll attempts to clarify that “[t]hough the components have been
treated as separate concepts for discussion purposes, they are not mutually
and that “[i]n summary, the total corporate social responsibility
of business entails the simultaneous fulfillment of the firm's economic, legal,
ethical, and philanthropic responsibilities.”
However, a few observations based on a plain reading of Carroll’s
diagram and text are worth noting,
deserve a rebuke, and ultimately explain
why the model helps clarify decades of corporate CSR failings and scandals
– more than Carroll perhaps intended.
First, the image of the pyramid connotes a hierarchy, as well as the
verbatim text in the foundational level – again: “Be profitable. The
foundation upon which all others rest [sic]” – captures the reality faced by
business leaders – that being profitable is perceived as a bedrock duty.
However, as a legal matter, the incorporation statutes of 46 states (including
Delaware) and the District of Columbia still stipulate that corporations are
only allowed to engage in lawful activities,
and articles of incorporation
typically include a commitment to obey the law.
While rarely tested, state
attorneys general or shareholders in 49 states have the power, at least in
theory, to move for dissolution of a corporation for unlawful conduct
power confirmed by the California attorney general.
Therefore, one could
argue that obeying the law is actually the foundational duty of a business.
Ultimately, regardless of whether we embrace or critique Carroll’s
pyramid of CSR, the hierarchy that it implies does reflect the realities of the
decision tree of managers. To take the Volkswagen emissions scandal as one
vivid example: the perceived duty to be profitable trumped any perceived
Id. at 42.
Id. at 43.
Here, we will not quibble with the clearly erroneous word choice of this seminal text
when Carroll wrote that his diagram was “not intended to juxtapose a firm's economic
responsibilities with its other responsibilities.” Id. at 42. More likely, Carroll intended to use
the word “prioritize,” rather than “juxtapose.”
See Sulkowski, Ultra Vires, supra note 27, at 101.
Id. at 102.
See id. at 106-07.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 159
responsibilities to be lawful, avoid harm, or benefit stakeholders.
Periodically the business press and general public take note of such scandals
when they are truly massive or egregious. Public debate and legislative and
regulatory action may even ensue, as described below, intended to reduce
the risk of a scandal’s recurrence. However, all of these acute governance
failures happen against a backdrop of ongoing societal ills and the collapse
of ecosystems. Carroll’s pyramid of CSR helps us understand why this is so:
each decision maker sees the pursuit of short term profitability as a more
fundamental obligation than remaining lawful, benefiting stakeholders, or
doing no harm – to the extent that we have been presently bearing witness,
to an accelerating (although still comparatively slow motion) suicidal sprint
to destroy our own planetary life support systems, manifested in phenomena
such as climate change.
We now move on to the question: now that we can hardcode what
we sometimes collectively ponder after an epochal scandal like the
worldwide financial collapse of 2008 – that “first, do no harm” perhaps ought
to be the bedrock first principle of business – should we pursue such ideas in
V. THE BUSINESS PERSPECTIVE: IS HARDCODING ETHICS DESIRABLE AS
A VOLUNTARY SELF-GOVERNANCE OR "SOFT LAW" MECHANISM?
The advantage of automating ethics from a business perspective is
mitigating the risk of liabilities associated with illegal or otherwise
scandalous practices that are undetected or at times deliberately tolerated by
managers. An easily imagined context in which a rational, self-interested
business leader would want a misdeed to be made impossible or immediately
detectable would be intentional fraud or unintended misrepresentation in
financial reporting. For example, in the U.S. context, as will be discussed
further below, the Sarbanes-Oxley Act (“SOX”) has extended liability to
corporate leaders whose firms misrepresent financial information.
tool, including blockchain-enabled applications, that mitigates this risk
would therefore be desirable to deploy, even for executives that are primarily
Beyond complying with legal requirements, corporate leaders have
committed voluntarily to various initiatives related to fair trade, ethical
sourcing, and emissions reduction targets. Partially to demonstrate progress
toward achieving such ethical aspirations, over 90% of the world's largest
companies publish regular disclosures on their societal and environmental
See Roger Parloff, How VW Paid $25 Billion for ‘Dieselgate’ — and Got Off Easy,
FORTUNE (Feb. 6, 2018, 5:01 AM), https://fortune.com/2018/02/06/volkswagen-vw-
See Sarbanes-Oxley Act, Pub. L. No. 107-204, 116 Stat. 745, 777 (2002) (codified as
amended at 15 U.S.C. §§ 7201-7266 (2002) and in scattered sections of 18 U.S.C., 28
U.S.C., & 29 U.S.C.).
160 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
In at least one instance in the U.S. involving Nike, the failure
to fulfill a voluntary, publicly declared ethical commitment – which is the
elimination of sweatshop labor – was grounds for a viable complaint against
the company for false advertising and unfair competition.
whether government sanctions are triggered, at least some executives that
commit to certain verifiable ethical standards in sprawling global operations
would want an assurance that their corporate code of ethics is actually
hardcoded. Motives, aside from any sense of personal integrity, could
include avoiding backlash from investors, customers, business partners, or
Yet there are three obvious objections from the point of view of the
reasonable businessperson, even one with a commitment to ethics in their
organization. First, standards of what constitutes an ethical practice in an
industry and society (and in the investment and activist communities)
change. For example, less than two centuries ago, in some contexts, it may
have been considered a comparatively humane practice to commit to not
whipping slaves on a plantation. Today, the act of owning a human being is,
in terms of mainstream global cultural norms and laws, generally
unacceptable and officially illegal.
In other words, why would any
reasonable business leader hardcode a standard of conduct, when the
standard of what is acceptable could change? Would the hardcoding not
lock-in a practice that seems enlightened now, but later appears egregious?
Closely related to this objection, which is based on the fact that social norms
are continually evolving, is the observation that change occurs in terms of
new facts coming to light, new technologies developing, and the fact that
business models, supply chains, and entire industries and markets change.
Once again, why would anyone commit to the best available technology
now, when it may be obsolete in a decade, either in terms of consumer
expectations or economic viability? To illustrate: would it be desirable to
hardcode a fuel economy standard that seemed ambitious in 1990, when
accessible emission-free transportation is possible in 2020? Could not a
business, investors, consumers, other stakeholders, and the environment all
be harmed by locking-in a status quo paradigm?
Second, a temporary compromise or failure to deliver on some
ethical performance targets may be considered necessary if it allows the
organization to continue operating. This is analogous to a corporation’s
See Adam Sulkowski & Sandra Waddock, Beyond Sustainability Reporting: Integrated
Reporting is Practiced, Required and More Would be Better, 10 U. ST. THOMAS L.J. 1060,
Kasky v. Nike, Inc., 45 P.3d 243, 259 (Cal. 2002). For a discussion on the delineation of
the boundary between protected political speech and commercial speech, see generally
James Weinstein, Speech Categorization and the Limits of First Amendment Formalism:
Lessons from Nike v. Kasky, 54 CASE W. RES. L. REV. 1091, 1142 (2004).
However, the International Labor Organization recently estimated that 40 million people
were victims of modern slavery in 2016. See Mark Tutton, 40 Million Slaves in the World,
Finds New Report, CNN (Sept. 20, 2017), https://edition.cnn.com/2017/09/19/world/global-
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 161
leadership asking for understanding and confidence over the long term,
despite more than once having to report a massive quarterly loss. Why would
any reasonable businessperson eliminate the option of a short-term
disappointment, to better deliver on a long-term duty or expectation?
Finally, there is the question of who bears responsibility for errors
in coding. A reasonable businessperson may be wary of the adoption of
automation that in principle promises to deliver value, but malfunctions and
results in harm.
For each of the objections above, there is, given current knowledge,
a rejoinder. With regard to the first two objections – that hardcoding current
best practices, or a standard could hamper viability of an entity or innovation
in the longer term – there are two responses. First, not every standard should
be hardcoded. Just as failure to deliver a quarterly profit does not on its own
constitute a breach of a duty to investors, a commitment to firm-wide climate
neutrality in every quarter would probably be an imprudent goal to attempt
to hardcode. On the other hand, a commitment to purchase an offset of each
unit of carbon emitted from a specific planned operation like a shipping route
could be hardcoded. In other words, hardcoding a commitment can be
narrowly tailored. Or, less threatening, a commitment to transparency could
be hardcoded, just as financial performance must be reported to investors
without actually creating automatic consequences for temporary
Second, as will be discussed again in the context of the regulatory
perspective, a concept already exists in contract law and public law: the idea
of proactively contemplating and stipulating when and how a rule can be
This is closely and conceptually related to the solution above:
narrow and careful tailoring of a commitment in terms of timespan, with
conditions for either ending the commitment or deliberately resetting it.
With regard to the final objection (who bears the fault for flawed
code), there is extant literature.
The potential for automation – despite its
promise to eliminate vast harms caused by human errors and malfeasance in
many contexts, – has provoked an arguably disproportionate amount of
concern for who should bear the blame when code is the cause of the harm,
either when it functions as intended or due to negligent coding.
arising from errors in hardcoded ethical standards could conceivably include
faulty information being reported, or possibly lost profits (stemming from
the code’s refusal to contract with a supplier based on an erroneous
In the context of public lawmaking, this idea is known as a sunset clause. See David A.
Fahrenthold, In Congress, Sunset Clauses are Commonly Passed but Rarely Followed
Through, THE WASH. POST (Dec. 15, 2012), https://www.washingtonpost.com/politics/in-
See, e.g., Donald G. Gifford, Technological Triggers to Tort Revolutions: Steam
Locomotives, Autonomous Vehicles, and Accident Compensation, 11 J. TORT L. 71 (2018)
(tracing the evolution of tort law along the timeline of technological change).
See Kevin Werbach, The Song Remains the Same: What Cyberlaw Might Teach the Next
Internet Economy, 69 FLA. L. REV. 887, 889 (2017).
162 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
conclusion that it failed to meet a standard). On the other hand, for a
conventional business corporation adopting blockchain-based applications,
current liability frameworks would likely apply, as they already do for
existing online operations management systems.
In other words, the risk of
harm and who bears the blame depends on many non-exotic details,
including whether a company outsourced the coding, what kind of harm the
code caused, and factors like indemnity clauses in contracts.
A less settled and more intriguing question arises in the case of
establishing liability in the context of a true DAO, especially because it
was not conceived as being amenable to the framework of a conventional
business with legal personhood.
Some persuasively argue that those
associated with the DAO would be treated as general partners with unlimited
personal liability, or else as an unincorporated association with the same
A solution has been suggested by Shawn Bayern, whereby a
DAO could be created as a member-less limited liability company
In such a scenario, the DAO acquires legal personhood for
purposes of contracting and liability disputes.
Returning to the perspective of the businessperson in a conventional
corporate setting: all of the steps mentioned above for addressing the
objections to hardcoding ethics points to the evolving role of lawyers in
automating business operations.
As commented elsewhere, attorneys will
likely not all need to be adept at coding.
However, a new role is evolving,
whereby legal counsel will need to help translate, as Nick Szabo put it, the
wet code of human norms into the dry code of software.
This will put a
greater premium on an attorney’s ability to help their business clients fully
contemplate all of their evident and less-evident assumptions, expectations,
and the contingencies that could materialize given a commitment to a given
rule or standard.
Despite the foreseeable objections and qualifications above,
hardcoding ethics is a viable tool for use in “soft law” approaches to self-
Id. at 935-44.
Metjahic, supra note 30, at 1547-48.
Don Kramer, Members of Unincorporated Association May Be Liable for Association’s
Debt, NONPROFIT ISSUES, (Sept. 16 - Oct. 15, 2012),
See Shawn Bayern, Of Bitcoins, Independently Wealthy Software, and the Zero-Member
LLC, 108 NW. U. L. REV. 1485, 1495-98 (2014).
See Shawn Bayern, The Implications of Modern Business-Entity Law for the Regulation of
Autonomous Systems, 19 STAN. TECH. L. REV. 93, 104 (2016).
See Sulkowski, Blockchain, supra note 34, at 327-28; see also Joan M. Heminway &
Adam J. Sulkowski, Blockchains, Corporate Governance, and the Lawyer's Role, 65
WAYNE L. REV. 17, 53 (2019).
See Heminway & Sulkowski, supra note 95, at 50.
See Sulkowski, Blockchain, supra note 34, at 328; see generally Nick Szabo, Wet Code
and Dry, UNENUMERATED (Aug. 24, 2008), http://unenumerated.blogspot.com/2006/11/wet-
code-and-dry.html (explaining wet and dry codes).
See Sulkowski, Blockchain, supra note 34, at 341.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 163
regulation. It is conceivable that, once a critical mass of companies in an
industry has adopted blockchain-based applications to assure compliance
with regulatory and ethical standards, it becomes risky and indefensible not
to do so. As is the case in other contexts, the failure to adopt a viable tool to
prevent or mitigate the occurrence of illegalities and harms may eventually
represent a deliberate failure to exercise reasonable care. The standard for
exercising reasonable care, part of the greater fiduciary duties of managers,
is constantly evolving and has at times been determined by norms in an
It is a foreseeable possibility that, even in the absence of
government encouragement or stakeholder demands, enough businesses
adopt blockchain-based applications with ethically-related screening and
conditions that proactively hardcoding ethics becomes a reasonable standard
of care for business managers.
VI. THE REGULATORY PERSPECTIVE: WOULD HARDCODING ETHICS BE
AS A MECHANISM OF GOVERNMENT REGULATION OF BUSINESS?
The goal of this section is to explore whether regulatory
requirements, prohibitions, and other frameworks could be advanced by
hardcoding business ethics. From a regulatory perspective, governments
already set non-negotiable “thou shalt” and “thou shalt not” minimum
standards for businesses, regulate information disclosure, and, through cap-
and-trade frameworks, promote offsetting of harms.
A more expansive
review of government regulations relevant to corporate governance that
could be facilitated by blockchain is available;
our goal here will be to
review several examples such as to facilitate a discussion of the desirability
of this option.
Stemming from blockchain’s essential function as a distributed
ledger, the government mandates and prohibitions that could be most
amenable to blockchain-based ethical hardcoding are those related to data
transparency, fraud detection, and auditing. As previously mentioned, SOX
establishes personal liability for executives, and stipulates that they are to
personally promise that regularly-checked oversight systems are in place to
detect financial fraud.
The Dodd-Frank Act similarly enhances reporting
and includes requirements for the reporting of minerals
See Dalia T. Mitchell, The Import of History to Corporate Law, 59 ST. LOUIS U. L.J. 683,
For a discussion of basing social contract, laws, and constitutional rights on blockchain,
see Steven Young, Enforcing Constitutional Rights Through Computer Code, 26 CATH. U.
J.L. & TECH. 52, 53 (2017).
See Heminway & Sulkowski, supra note 95, at 22.
See Sarbanes-Oxley Act of 2002, supra note 83, at 116 Stat. 789. For a more in-depth
discussion of duties created by the SOX, see Larry C. Backer, The Duty to Monitor:
Emerging Obligations of Outside Lawyers and Auditors to Detect and Report Corporate
Wrongdoing Beyond the Federal Securities Laws, 77 ST. JOHN’S L. REV. 919, 962 (2003).
See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203,
124 Stat. 1376 (2010). For an overview and discussion of the law, see generally David M.
Lynn, The Dodd-Frank Act’s Specialized Corporate Disclosure: Using the Securities Laws
164 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
sourced from conflict zones.
Blockchain-based applications could help
achieve the ultimate purpose of such laws: fraud elimination and
transparency. These are just the most intuitive and obvious regulatory
contexts. Some argue that any governmental mandate or prohibition –
including encroachments on constitutional rights – could, at least in theory,
be reduced to code on a blockchain.
For purposes of this paper it is important to further flesh-out how
blockchain-based applications, beyond assuring reporting credibility and
enforcing mandates and prohibitions, could also further government-backed
initiatives to use market mechanisms to limit harms. In addition to Pigouvian
taxes that effectively raise the price of permitted activities that have harmful
governments have established cap-and-trade regimes.
Examples include the U.S. Clean Air Act’s trading scheme for emissions
from stationary sources.
Such cap-and-trade schemes set a declining limit
on aggregate emissions in a region and allow late adopters of less-polluting
technologies to purchase credits from businesses that adopt such
To function, these offset markets require three
elements: credible tracking of emissions data, a prohibition on exceeding the
stipulated aggregate maximum, and a marketplace where a price can be
settled upon between those who pollute less than their apportioned share, and
those who pollute more and therefore need to purchase credits. Each of these
functions, such as data tracking, a prohibition, and a set of if-then conditions
that comprise the credit purchase agreement, are clearly possible to
automate. Further, the tracking of emissions and trading of credits could be
made more transparent and efficient if automated. Moreover, if blockchain-
based applications are employed, then aggregate limits, compliance with the
rules, and reliability of the underlying data would all be enhanced. Aside
from working out technical details such as how, when, and where emissions
are detected – in other words, how a fact in the real world becomes a recorded
datum in the digital ledger
– blockchain-based applications appear to be
ideally suited to use in government-backed cap-and-trade mechanisms.
In short, governments have already clearly expressed the intent of
codifying minimum ethical standards for business laws. While, in some
contexts, some amount of discretion is tolerated, the standards mentioned
to Address Public Policy Issues, 6 J. BUS. & TECH. L. 327 (2011); see also Emily Veale, Is
There Blood On Your Hands-Free Device?: Examining Legislative Approaches to the
Conflict Minerals Problem in the Democratic Republic of Congo, 21 CARDOZO J. INT'L &
COMP. L. 503, 520-25 (2013).
See Dodd-Frank Wall Street Reform and Consumer Protection Act, supra note 103, at
124 Stat. 2213–18.
Young, supra note 100, at 68.
See generally Erin Adele Scharff, Green Fees: The Challenge of Pricing Externalities
Under State Law, 97 NEB. L. REV. 168 (2018).
See Robert N. Stavins, A Meaningful U.S. Cap-and-Trade System to Address Climate
Change, 32 HARV. ENVTL. L. REV. 293, 296-97 (2008).
Clean Air Act, 42 U.S.C. §§ 7401-7671q (2015).
Stavins, supra note 107, at 298.
See Sulkowski, Blockchain, supra note 34, at 308.
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 165
above were not intended to be optional. The gap between legal expectations
and reality has arguably existed partially because the technology did not yet
exist to hardcode a standard. Moving forward, if legislators and regulators
are serious in setting non-negotiable minimum standards and effective
market mechanisms, they now have a tool to reduce illegality that could be
vastly more efficient and effective than conventional schemes relying on
deterrence (through penalties) and costly, time-consuming, and
unpredictable investigation, enforcement, and litigation.
There are four implications for legislators and regulators based on
the discussion in this section. First, at a minimum, clarification should be
issued as to whether and how blockchain-enabled applications satisfy
existing regulatory frameworks. The U.S. Securities and Exchange
Commission (“SEC”) has issued similar clarifications in the past, as to the
acceptability of disclosing information online.
This is especially evident,
for example, in the arena of informational regulation, specifically in the
context of mandatory reporting and data privacy standards.
perhaps legislators and regulators would want to go further and require such
applications, including the triggering of offset requirements or credit
purchases and consequences such as penalties in certain contexts. To require
a more efficient and effective approach to existing practices is not a massive
leap forward in terms of conceptual approach, but rather an upgrade
analogous to recognizing that online communications ought to replace paper-
based communication for some purposes. Moreover, it can offer the benefit
of preventing illegalities before they occur.
Third, given that some
principles are deliberately flexible and based partially on reasonable person
standards, there should be greater deliberation and clarity regarding which
standards are discretionary rather than bright line obligations. Finally, with
regard to the primary objection noted herein, that societal norms will evolve,
and changes will be demanded, we have noted the normal protection against
calcification of a rule that may later seem objectionable: sunset provisions.
Therefore, the fourth implication for regulators will be a need to contemplate
and include sunset provisions whereby a timeline and process is set for the
possible alteration of hardcoded standards. None of these implications are
conceptually revolutionary. After examining the feasibility and desirability
of hardcoding ethics from the business and regulatory perspectives, it
remains to consider these questions from a more abstracted ethical
According to SEC interpretive guidance, relevant investor protection law provides
“considerable flexibility” and is intended to permit the use of technologies such as the
Internet. See Selective Disclosure and Insider Trading, 65 Fed. Reg. 51,716, 51,723-24
(Aug. 24, 2000) (codified at 17 C.F.R. pt. 243).
See Heminway & Sulkowski, supra note 95, at 41.
See Young, supra note 100, at 57.
166 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
VII. THE ETHICAL PERSPECTIVE: WEIGHING THE IMPLICATION OF WU-WEI
FOR BUSINESS AND THE DUTY OF ALIGNING ONE'S PATH IN BUSINESS
WITH THE NATURAL ORDER
This section will attempt to discuss hardcoding ethics from a
perspective that is removed from the narrower perspectives of market
participants or regulators. This is based on an acceptance of the theory that
we may divine valuable perspectives by attempting to remove ourselves
from the biases attendant to a specific position or role.
This is consistent
with the approach taken by philosophers ranging from the Ancient Greeks to
hermits of various traditions: those striving for sagacious insights often
remove themselves from society to gain and later share wisdom.
As many, if not most, textbooks for survey courses on law in
business schools summarize, there are ultimately two overarching calculi for
ethical reasoning: deontology and consequentialism, or utilitarianism.
Deontology is a duty-centered approach to ethics.
As captured in
Emmanuel Kant’s notion of the categorical imperative, this school of thought
holds that one ought to evaluate what the world would be like if everyone
undertook the action that one is contemplating.
If the result is an
unacceptable world, then one has a hard duty not to take this action,
regardless of the consequences. Taken to an extreme, this school of thought
leads one to conclude that “thou shalt not kill” is truly a non-negotiable
obligation, and results in a commitment to pacifism. Consequentialism, on
the other hand, holds that one ought to weigh benefits and harms of an action,
and choose options that create the greatest benefits for the most people.
This line of reasoning can lead to disturbing, but some would argue,
ultimately defensible actions in wartime. These include committing one’s
own youth to lose their lives storming beaches, or even the creation of
firestorms over civilian populations through the use of nuclear or
conventional bombing – if one accepts that in the longer run these were
decisions that spared a greater number of lives by expediting the end of
Based on this overview of the two broad categories of ethical
reasoning, hardcoding non-negotiable standards seems consistent with a
See JOHN RAWLS, A THEORY OF JUSTICE 1, 81-86 (Harvard Univ. Press rev. ed. 1999).
See PETER FRANCE, HERMITS: THE INSIGHTS OF SOLITUDE 43, 121 (Vintage Digital 2014).
Some may argue that this reduction of ethical reasoning frameworks to two broad
categories leaves out approaches such as virtue ethics. Virtue ethics, however, involves the
building-up of appropriate sentiments and habits over time. See generally ARISTOTLE,
NICOMACHEAN ETHICS BOOK I (Martin Ostwald trans., Bobbs-Merrill Educ. Pub. 1962). It
therefore does not really offer a calculus of moral reasoning for an individual to make a
decision at a certain point in time.
See STEPHEN DARWALL, Introduction, in BLACKWELL READINGS IN PHILOSOPHY:
DEONTOLOGY 3, 4-6 (Stephen Darwall ed., 2003).
See IMMANUEL KANT, THE CRITIQUE OF PRACTICAL REASON 39-42, 64 (Thomas
Kingsmill Abbott trans., The Floating Press 2009) (1788) (ebook).
See generally MARTIN PETERSON, THE DIMENSIONS OF CONSEQUENTIALISM: ETHICS,
EQUALITY, AND RISK (2013).
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 167
deontological approach. Since hardcoding a “thou shalt” or “thou shalt not”
command ought to prevent a certain act from taking place, it would eliminate
the possibility of an efficient breach – the phenomenon of choosing an illegal
or harmful act if the cost of fines, lawsuits, settlements, and other costs are
outweighed by the potential for perceived gains.
It is less obvious whether hardcoding ethics can be seen as consistent
with a consequentialist approach. If a consequentialist’s answer to even the
most extreme ethical question – for example, whether it is morally correct to
deliberately kill an innocent person – is “it depends,” then perhaps a
consequentialist would conclude that no rule should be hardcoded? On the
other hand, not every harm is so obviously egregious as outright murder,
especially if it can be effectively neutralized. Once again, the example of
carbon emission offsets or credit trading provides us with an accessible
scenario to contemplate. Emitting carbon is not in itself deadly, inherently
anathema to a core ethical value, or unnatural – it is literally as natural as
breathing. The problem is the aggregate net release of carbon from human
activities that destabilizes climate systems with deadly consequences. In
such a scenario, a consequentialist would suggest that the emissions should
be tolerated as long as they are offset; in other words, so long as disastrous
eventual consequences are neutralized. It is conceivable to hardcode a rule
that permits an act yet attaches a penalty or requirement to offset a harm. As
explained above, this system is already in place in various industries and
regions, both through government-arranged cap-and-trade and credit
Therefore, hardcoding ethics can be made consistent with both a
deontological approach and a consequentialist approach. This section will
conclude now with a discussion of what many have come to believe is the
defining existential crisis of global civilization in the early 21st Century: that
our human-created systems are destroying ecosystems to the extent that we
are threatening – without exaggeration or hyperbole – our natural life support
systems. This context allows us to see how both a deontological and
consequentialist approach, using a Taoist framing, can inform a timely
conversation on hardcoding ethics.
We presently hear echoes of both deontological and consequentialist
reasoning expressed in debates about business ethics in the context of
sustainable development. For example, the consequentialist school of
thought finds expression in at least two common arguments involving rapid
and polluting development or the destruction of natural ecosystems. First,
that despite the destruction of life, including loss of human life as a result of
pollution, development brings a net improvement in a greater number of
people’s living conditions by eliminating diseases and other problems
associated with extreme poverty. Second, that despite the annihilation of
ecosystems and sometimes exploitation of human populations in the
developing world, global capitalism creates massive amounts of wealth, a
portion of which individuals and governments could redirect to humanitarian
and environmental causes, or reinvest in developing the next generation of
168 THE BUSINESS & FINANCE LAW REVIEW [Vol. 3:2]
socially and environmentally benign or even beneficial technologies and
Regardless of our receptivity to the general lines of reasoning and
specific arguments above, and accepting that societal values and human-
made laws change, along with the state-of-the-art in technologies, there is a
simple but irrefutable fact that is finally getting traction in mainstream global
awareness: the fundamentals of natural sciences are unchanging.
of physics, chemistry, and biology are inviolable in the context of
understanding and planning human activity on earth.
In lieu of an exhaustive review of scientific literature, it should
suffice to cite a representative example of a minimum agreed upon consensus
of hundreds of specialists who unambiguously have been warning for
decades: we have, and continue to accelerate, a death spiral of the destruction
of planetary life support systems.
Among other potentially reasonable
responses, one could argue that achieving net zero environmental harm is an
unassailable and non-negotiable duty – a categorical imperative for our time.
There are examples of industrial companies who have demonstrated that the
pursuit of this goal can actually boost profitability and economically
valuable innovation, so it is not anathema to capitalist principles to consider
If a tool exists to help automate this ethical duty to achieve net
zero environmental harm, one might reasonably state that the burden rests
with naysayers who oppose the hardcoding of this obligation. While
deontological reasoning helps us arrive at this duty (i.e. each entity must
achieve climate neutrality because, if everyone pollutes without limit, the
outcome of mass death and suffering is unacceptable), the most evident
hardcoding approach (automatic offsets) is arguably a consequentialist
approach. Coming full circle, hardcoding- at least a duty to achieve net zero
climate harm- would manifest two core Taoists tenets for daily business
operations: (1) action without deliberation; and (2) alignment of that action
with nature and natural laws.
To clarify, this section explored deontological and consequentialist
reasoning and found that hardcoding ethics – depending on details – can be
deployed in a way that is consistent with both approaches. This is regardless
of whether it is imposed or encouraged by either government mandate or
incentives, or is adopted voluntarily by a business entity, or whether we are
considering the context of fraud detection or environmental collapse. We
have deliberately closed this section, however, with a specific context in
which hardcoding ethics would resonate with themes from deontology and
See generally Bill McKibben, Physics Doesn’t Negotiate, MEDIUM (Aug. 30, 2015),
See generally William J. Ripple et al., World Scientists’ Warning to Humanity: A Second
Notice, 67 BIOSCIENCE, 1026 (2017) (in addition to William J. Ripple, Christopher Wolf,
Thomas M. Newsome, Mauro Galetti, Mohammed Alamgir, Eileen Crist, Mahmoud I.
Mahmoud, and William F. Laurance, 15,364 scientists from 184 countries were signatories
to this document).
See generally RAY C. ANDERSON & ROBIN WHITE, BUSINESS LESSONS FROM A RADICAL
INDUSTRIALIST (McClelland & Stewart 2011).
 THE TAO OF DAO: HARDCODING BUSINESS ETHICS ON BLOCKCHAIN 169
consequentialism and Taoism, and hope that others will build upon this
provocation to consider whether there is really a viable option to hardcoding
“first, do not (net) harm” into the operations of business in our time.
This paper has explored a frontier issue in business. We are in the
relatively early throes of automating operations with ethical implications in
conventional business organizations, and at the dawn of deploying DAOs.
This raises the possibility of more deliberately hardcoding ethics into
businesses. I have reviewed the basics of Taoism as a framing device to
understand implications of this option: among them being daily actions
occurring without deliberation.
This study has concluded that hardcoding ethics is not just an option
for DAOs; given the right adaptation, the underlying technologies of
blockchain-enabled records and smart contracting can and are being credibly
adopted by conventional business entities.
Having pointed out that this existing practice can be used to further
automate ethics by requiring, barring, or offsetting certain actions and
attendant consequences, this study then evaluated the desirability of this
prospect from the business, regulatory, and ethical perspectives. Reasonable
individuals may, at present, disagree on the desirability of eliminating human
discretion over certain decisions with business, legal, and ethical
dimensions. This paper outlined some foreseeable lines of argumentation for
others to build upon in future debates, scholarly and otherwise, about
whether automated ethics should be voluntarily adopted or required in
Most confidently, one can imagine that eventually hardcoding rules
that eliminate fraud and mitigate the risk of liability could become part of
the reasonable standard of care that managers owe as part of their fiduciary
duties. Another context is the possibility of hardcoding to help businesses
achieve net environmental neutrality. This paper concluded with a deliberate
provocation, coming full circle to draw upon Taoist tradition in suggesting
that hardcoding the principle of achieving net zero environmental harm gives
business leaders a tool to comply with the urgent necessity of aligning the
path of their enterprises with the laws of nature.