Blockchain

The Ethics of Blockchain in Organizations | SpringerLink

A New Kid on the Block

Blockchain technology is a new form of trust and choice architecture, which allows for the disintermediation of third parties (Werbach, 2018). At the heart of blockchain technology is a new form of “consensus” that makes it possible for the platform and users to make decisions without oversight and presence of a third party. For example, if person A is transferring a sum of money from her account to person B, banks record the transaction. In blockchain and crypto-economics, other users of the platform record the transaction. By multiplying the ledgers that include the transaction, blockchain makes it extremely difficult for a single user or even a group of users to manipulate the transaction or double-deal. The blockchain platform often includes an incentive mechanism to encourage users to participate in the record-keeping process. Most notably, in the Bitcoin platform, the users are rewarded if they solve complex mathematical problems (called mining) (Böhme et al., 2015). In essence, blockchain is a crowd-based or peer-to-peer platform, which enables verification and storing of information with the help of all of its users (i.e., disintermediation). The information is stored in digital blocks, which creates a chain of immutable information (Tapscott & Tapscott, 2017).

Blockchain enables a new network-based decision-making process whereby users are not merely the recipients of information of decisions but also the decision-makers (Ghodoosi, 2021). Put differently, at its core, blockchain enables the creation of value through a consensus-based verification mechanism based on an incentive structure. Values, therefore, are created not by trust in a government (e.g., dollar) but based on verification of others (Tapscott & Tapscott, 2017). Moreover, in blockchain platforms, users are often anonymous or pseudonymous which enables a new form of engagement with the network and a new type of decision-making (Aitzhan & Svetinovic, 2016). Even though the technology is still in a nascent phase relative to other technologies, blockchain’s promise lies in its new form of rendering organizational decisions that can change the structure of organizations.

The Power of Artificial Intelligence and Blockchain

The relationship between blockchain and AI is evolving. Blockchain is a record mechanism enabling distributed decision-making and immutable record keeping. However, the information that is fed into the blockchain system and ultimately printed into the blocks in a blockchain can be AI-enabled. In other words, AI is the connection between blocks and the external data. For example, imagine a blockchain-based distributed ledger social network. All users’ public information is stored on blocks. However, new blocks can be added based on AI algorithms which collect the information of users (e.g., about their preference for a presidential candidate) and store them into new blocks. One difference between the distributed social network and the existing one is that AI algorithms allow for further decentralization (elimination of central planning) as the AI algorithms determine the information that is shared among users and added to new blocks. One can further imagine that both the AI algorithm and the types of information recorded can be modified pursuant to the consensus mechanisms (similar to a constitution) adopted as the underlying basic logic of this social network. The use of blockchain jointly with AI in organizations presents novel ethical questions given that the immutable data storage capability of blockchain meets the ever-increasing capability of AI in generating data.

Organizations Dipping Their Toes

Blockchain technology has begun to be implemented in a variety of business processes at several organizations. Most notably, the blockchain technology has made an important impact on the finance industry through the use of cryptocurrency (Truong et al., 2018). Blockchain’s use is also on the rise in production and supply chain management. For instance, following the wide-spread contamination of romaine lettuce, Walmart launched a test pilot of blockchain for its supply chain to be able to find the source of its goods faster and more efficiently (Corkery & Popper, 2018). In addition to Walmart, as many as fifty large organizations, such as Amazon, JPMorgan and BP have taken steps in adopting blockchain technology in some forms (del Castillo, 2019). Blockchain technology also lies at the core of several hundred start-ups which are using the technology in insurance (e.g. encoding rules for damages reimbursement), governmental institutions (e.g. identity management by automating identity checks), healthcare (e.g. automating processes such as prior authorization for specific treatments), and the sharing economy (e.g. creating peer-to peer autonomous organizations replicating services such as Airbnb and Uber). Overall, aside from the startup scene, up until now blockchain has been primarily used in finance and supply chain logistics. Few organizations have taken steps to integrate blockchain technology into their human resources practices (BasuMallick, 2020).

The Incomplete Ethics Picture

Quite recently, an interest in the ethics of blockchain has developed in the literature. The existing literature however has not focused on the impacts of blockchain on organizational ethics. These articles often provide recommendations for future research which include discussion of ethics in management and human resources.

In a review of the ethics of blockchain, Tang et al. (2020) discuss the ethics of blockchain’s technology stack by examining privacy, accuracy, property and accessibility. They also discuss the ethics of cryptocurrencies, smart contracts and decentralization for institutions, society and governance. Their analysis did not focus on any particular ethical theories, but rather a general review of the ethics of different levels of blockchain. Tang et al. (2020) also express the important need for more in-depth research into specific areas of business including in areas of management. In another article, Hyrynsalmi et al. (2020) conducted a systematic literature review of blockchain and ethics and found that current research is lacking with regard to discussion of the consequences of blockchain. Particularly, the authors found an absence of specific ethical theories in discussions of blockchain and therefore recommended that future research draw on particular ethical frameworks. The authors also suggest that future work focus on the application of blockchain technology to different practical contexts.

Other than review articles, other research on blockchain and ethics has discussed the risks associated with full acceptance of trust in blockchain over trust in others (He, 2020) and the potential of “hardcoding ethics” by creating decentralized autonomous organizations (DAOs) that encode all operating rules, thereby limiting human discretion (Sulkowski, 2020). Dierksmeier and Seele (2020) provide a business ethics perspective to blockchain technology and its different applications. Specifically, they examine favorable, unfavorable and ambivalent dimensions of blockchain technology utilizing four theories of ethics (utilitarianism, contractarianism, deontology and virtue ethics). The authors highlight the need for thorough analysis of the ethics of blockchain considering that there may be many advantages yet at the same time disadvantages that arise from blockchain. Advantages include unprecedented degrees of transparency and accuracy in addition to cost reduction and efficiency of process. Disadvantages may include loss of jobs that consist of routine tasks which may lead to an increase in income inequality. Blockchain-based cryptocurrencies may also enable money laundering in addition to other illegal transactions. In their analysis of ethically ambivalent applications of blockchain, Dierksmeier and Seele (2020) discuss the ethics of the move from institutional trust to transparency, algorithms in job platforms and privacy that is limited to most but transparent to only a few.

These discussions bring forth important ethical issues in the field of business as a whole and call for further research on other aspects of blockchain in business that have ethical implications. Addressing these calls for research, we examine ethical perspectives for the implementation of blockchain in people operations.

Decentralized People Operations (DePo)

Blockchain technology has caused some to question whether there is a real need for formal organizations and pushed many to reflect on the underlying trust assumptions of organizations (Seidel, 2018). However, other scholars have argued that online peer-to-peer communities, such as those outside of a formal organization, cannot run solely by protocols and algorithms but require a form of social institution to establish accountability and safeguard the legitimacy of the system as a whole (De Filippi, 2015; De Filippi & Loveluck, 2016). Although discussion about the need for formal organizations as whole exists in the literature, the majority of research on blockchain in business has focused on applying blockchain to improve certain aspects of organizational performance. Specifically, blockchain has been mainly applied in finance (cryptocurrencies) and supply chain (Akter et al., 2020; Chang & Chen, 2020; Felin & Lakhani, 2018; Treleaven et al., 2017). In finance, blockchain has unleashed a new nascent industry often referred to as decentralized finance (DeFi) which is growing at a rapid pace (Sandner, 2021).

However, blockchain and its underlying mechanism has the ability to transform other areas. Most notably, blockchain has the potential to disrupt people operations. This is where blockchain can have a vast impact on human interactions and human decision-making in organizations. From recruitment and selection to performance management, organizations can utilize blockchain technology to streamline their employee management processes, making it all the more efficient providing benefits to both the employees and the organization itself.

We will call this area DePo. DePo is where the human experience in organizations will be most affected by blockchain and AI. DePo has the potential to create new forms of choice architecture for all stakeholders in organizations including leaders and employees.

Stone et al. (2015) in a review of literature at the intersection of technology and human resources found that this area is very nascent with many avenues for future research. The authors specifically called for additional research to examine the extent to which the implementation of technology in human resource practices enables organizations to achieve their human resource goals. Existing reviews of blockchain and ethics have not thoroughly discussed the role that blockchain can play for human resources and organizational behavior (Tang et al., 2020). The existing literature primarily has looked at the features of blockchain and its applications in different sectors (i.e. Kher et al., 2020). There are handful of reviews related to the intersection of blockchain and management. However, in the majority of these reviews (i.e. Alkhudary et al., 2020; Frizzo-Barker et al., 2020; Kher et al., 2020; Kimani et al., 2020; Klarin, 2020; Xu et al., 2019), human resource management was not even mentioned. The literature on blockchain in human resource management is nascent. Only a handful of scholars have started to investigate it from a management perspective. For example, Fachrunnisa and Hussain (2020) discussed the creation of a human resources training supply chain in which skills needed in the industry are found via blockchain algorithms. In the field of engineering, scholars have begun to develop protocols and platforms that will allow blockchain functionality in organizational recruitment processes (Öncu, 2019) and work history fraud prevention (Sarda et al., 2018). Equally, discussion of ethics in blockchain is nascent (Tang et al., 2020) and does not engage discussions related to human resource management.

The Ethics of DePo

As blockchain makes its way into organizational decision-making, it is imperative to have a better understanding of the ethical issues. Literature on the ethics of human resources has questioned the basic principle of viewing people as simply “resources” of an organization (Greenwood, 2002). As explained in this paper, with new forms of choice architecture, blockchain has the potential to create new forms of organizational decision-making for leaders and employees. Individuals’ careers, prosperity, motivation, and overall happiness will be affected by these new forms of organizational decision-making. These changes will not only have micro impacts. These new forms of decision-making can ultimately lead to DAO. DAO aims to create organizations based on distributed decision-making (Wang et al, 2019) whereby the lines between leaders and employees become murky. DAO promises a true stakeholder model which can have macro impacts on the ways organizations are formed and organized. It is therefore imperative to understand the impacts of blockchain on people operations to have a better grasp of ethical issues.

Similar to DeFi, DePo relies on disintermediation, immutability, smart contracts, and network verification processes. Disintermediation refers to elimination or reduction of verifiers in each transaction or decisions (Quiniou, 2019). Immutability refers to the blockchain ability to record information without allowing an entry point for manipulation of the data (Casino et al., 2019). Smart contracts refer to coded (computable) agreements which make the enforcement self-executing (Ghodoosi, 2021). The network-based verification process refers to users’ ability to validate the information pursuant to pre-defined consensus mechanisms prior to inclusion of such information on the next block (Natarajan et al., 2017). These key features can have lasting impacts on different aspects of people operations.

Generally speaking, we categorize various aspects of people operations into three: entry, intraorganizational affairs, and offboarding as shown by Fig. 1.

Based on these three stages, in the following sections, we have chosen five primary areas of people operations—1. Recruitment and selection, 2. Compensation, 3. Motivation and retention, 4. Performance management, 5. Offboarding—to discuss the ways in which blockchain can be applied. The goal is not to discuss all aspects of people operations, but rather to briefly review the primary categories and detail some of the important areas in which blockchain can have a consequential impact. Additionally, using the model from Dierksmeier and Seele’s (2020) paper, within each section we review the ethical implications from four viewpoints—virtue ethics, utilitarianism, deontology, and contractarianism—for each of the human resources practices discussed. Below we will first briefly review the ethical theories that we will be relying upon in the sections below.

Ethical Theories

Normative ethical judgement depends in part on the adopted ethical approach. We have adopted a framework based on the components of an act along with its apriori status. Generally, acts can be viewed from three perspectives: the agent who engages in the act, the act itself, and the consequences of the act. Ethical theories have placed the emphasis on each of these elements. Additionally, another perspective approaches the ethical issue from an ex-ante perspective (prior to the act) pursuant to a hypothetical behind-the-veil social agreement. Even though the lines between the ethical theories become murky at times (Koehn, 1995), this framework enables a structured ethical analysis that we will use for the purposes of this paper.

Traditionally, ethics dealt with transcendental values that were inherently virtuous independent of the associated outcome or agents who acted in accordance with such values. This approach is the doctrine that emphasizes moral virtues. Virtue ethics approaches an act in relation to certain virtues. In the business setting, the virtue ethics approach includes a long list of virtues recognized in the business setting. This includes values such as fairness, justice, honor, reliability, respect, responsibility, integrity, trust, trustworthiness, wisdom among others (see e.g., Brewer, 1997; Brinsfield, 1998; Dean, 1992; Card, 2010; Gier, 2001; Limbs & Fort, 2000; McCracken et al., 1998; Murphy, 1999; Seeger & Ulmer, 2001; Solomon, 1992; Shanahan & Hyman, 2003; Tessman, 2000).

We find the emphasis on human capabilities as a helpful approach in virtue ethics especially in the context of the present discussion (Bertland, 2009). Pursuant to this view, and for the purposes of this paper, an institution or a technological advancement is ethically judged based on its ability to flourish humans and elevate human dignity (Nussbaum, 2000). Accordingly, actions are ethical if the character trait of the act leads to human flourishing (Annas, 2004; Foot, 2003).

Another approach is Utilitarianism which unlike virtue ethics bases the ethical evaluation on the consequences of an act. This approach is a teleological view based on ultimate rewards and punishments and submits that acts are just if they benefit the majority (Hansen, 1992; Hunt & Vasquez-Parraga, 1993; Louden, 1992). Utilitarians emphasize that the greatest happiness for the greatest number of people should be the guiding principle. In sum, utilitarians examine both the good and the bad consequences arising from an action.

Contrary to utilitarianism which looks at the consequences of an action to determine its morality, Deontology is an agent-based norm-keeping ethical approach. Deontology states that individuals are morally obligated to act according to a particular set of principles and rules irrespective of the outcome. Deontologists believe that certain absolute principles such as honesty should be obeyed regardless of the outcome (Brady & Dunn, 1995; Cody & Lynn, 1992). Actions are deemed right or wrong based on a series of rules and agents’ duties (Micewski & Troy, 2007). One of the negative duties arising from a deontological perspective is the obligation to do no harm (Scheffler, 2002) which can be helpful in the context of the present discussion.

Another ethical approach frames the ethics of actions a priori and behind a veil of ignorance. Contractarianism (Rawls) is the approach that examines ethicality regardless of one’s status in society. Pursuant to this approach, society is in a form of agreement with all those who are in the society (Dunfee & Donaldson, 1995). Rawls has proposed two primary principles: principle of equal liberty and principle of equality (Rawls, 1991). The first principle indicates that all citizens have an equal right to basic liberties. The second principle suggests that economic principles should meet two requirements. The first requirement is that the least advantaged in society should receive a greater number of benefits. The second requirement is that all individuals should have equal chance and equality of opportunities.

Based on the foregoing, we propose the ethical framework in Fig. 2 to analyze the issues related to blockchain in people operations.

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